RISK FACTORS
An investment in the Securities involves significant risk. Accordingly, you should consider carefully all of the information set forth in,
or incorporated by reference into, this prospectus supplement and the accompanying prospectus, including the section entitled Risk Factors, before you decide to invest in the Securities. Terms which are defined in Description of
the Securities included in this prospectus supplement beginning on
page S-50
have the same meaning when used in this section.
Risks Relating to HSBCs Business
For information on risks relating to HSBCs business, you should read the risks described in the 2017 Form
20-F,
including the section entitled
Risk factors
on pages 98 through 106 and Note 34 (
Legal proceedings and regulatory matters
) to the consolidated financial statements included
therein on pages 280 through 286, which is incorporated by reference in this prospectus supplement, and/or similar disclosure in subsequent filings incorporated by reference in this prospectus supplement.
Risks Relating to the Securities
The Securities
have no fixed maturity and no fixed redemption date and you do not have the right to accelerate the repayment of the principal amount of the Securities prior to a
Winding-up
Event.
The Securities are perpetual securities and have no fixed maturity date or fixed redemption date. Moreover, you do not have the right to cause
the Securities to be redeemed or otherwise accelerate the repayment of the principal amount of the Securities prior to a
Winding-up
Event (as described under
Description of the SecuritiesDefault
and Remedies
). Accordingly, we are under no obligation to repay or redeem (in whole or in part) the principal amount of the Securities at any time prior to such
Winding-up
Event and, as a result, you
may not receive any payments of principal on the Securities.
Interest on the Securities will be due and payable on an interest payment date only if
it is not cancelled or deemed to have been cancelled, and we may cancel interest (in whole or in part), in our absolute and sole discretion, at any time.
Interest will be due and payable only on an interest payment date to the extent it is not cancelled or deemed to have been cancelled in
accordance with the terms of the Securities. Although we may, in our sole discretion, elect to make a partial interest payment on the Securities on any interest payment date, we may do so only to the extent that such partial interest payment may be
made without breaching the restriction described below. Moreover, any portion of interest not paid on the relevant interest payment date will be deemed to have been cancelled.
We will have sole and absolute discretion at all times and for any reason to cancel (in whole or in part) any interest payment that would
otherwise be payable on any interest payment date. If we do not make an interest payment in respect of the Securities on the relevant interest payment date (or if we elect to make a payment of a portion, but not all, of such interest payment), such
non-payment
will evidence the exercise of our discretion to cancel such interest payment (or the portion of such interest payment not paid), and accordingly such interest payment (or the portion thereof not paid)
will not be due and payable. Moreover, notwithstanding such cancellation or that the Securities rank senior to our ordinary shares, we may use funds that could have been applied to make such cancelled interest payments to pay dividends on our
ordinary or preference shares or to meet our other obligations as they become due, including on any Parity Securities (such as any other series of contingent convertible securities we may issue under the Indenture). It is the current intention of
our board of directors to take into account the relative ranking in our capital structure of our ordinary shares and outstanding additional Tier 1 securities whenever exercising its discretion to declare dividends on the former or to cancel interest
on the latter. However, our board of directors may depart from this policy at any time in its sole discretion.
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In addition, we will not make an interest payment on any interest payment date, and such
interest payment will therefore be deemed to have been cancelled (and thus will not be due and payable on such interest payment date), if:
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the amount of Relevant Distributions exceeds the amount of Distributable Items as of such interest payment date;
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the aggregate of (x) the interest amount payable in respect of the Securities and (y) the amounts of any distributions of the kind referred to in Article 141(2) of CRD (and any implementation of such provision
in the UK or, as the case may be, any succeeding provision amending or replacing such Article or any such implementing provision) exceeds the Maximum Distributable Amount (if any) applicable to us as of such interest payment date (see
Risks Relating to the Securities
Existing or new capital or leverage requirements may result in restrictions on making interest payments in respect of the Securities, in which case interest payments will be cancelled,
which you may not be able to anticipate
);
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the Solvency Condition (as described under
Description of the SecuritiesSubordination
) is not satisfied in respect of such interest payment; or
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the Relevant Regulator orders us to cancel (in whole or in part) the interest otherwise payable on such interest payment date.
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Interest will not be due and will not accumulate or be payable at any time after cancellation or deemed cancellation, and you will have no
rights thereto or to receive any additional interest or compensation as a result of such cancellation or deemed cancellation. Furthermore, no cancellation or deemed cancellation of interest in accordance with the terms of the Indenture will
constitute a default in payment or otherwise under the terms of the Securities. Although we will endeavor to provide notice of cancellation or deemed cancellation at least five business days prior to the relevant interest payment date, we will only
do so if practicable and failure to provide such notice will have no impact on the effectiveness of, or otherwise invalidate, any such cancellation or deemed cancellation of interest.
Existing or new capital or leverage requirements may result in restrictions on making interest payments in respect of the Securities, in which case
interest payments will be cancelled, which you may not be able to anticipate.
The capital and leverage frameworks to which we are
subject require us to hold certain levels of capital, including common equity Tier 1 capital. A failure to hold sufficient levels of capital, including common equity Tier 1 capital, as required by these frameworks (as may be amended from time to
time) may result in restrictions on distributions being applied pursuant to which we may be required to cancel (in whole or in part) interest payments in respect of the Securities. Cancellation (in whole or in part) of interest payments in respect
of the Securities may affect the value of your investment in the Securities.
We are required, on a consolidated basis, to hold a minimum
amount of total regulatory capital of 8% of risk weighted assets, a minimum amount of tier 1 capital of 6% of risk weighted assets and a minimum amount of common equity Tier 1 capital of 4.5% of risk weighted assets (the Pillar 1
requirements). In addition, the PRA requires us to hold extra capital to cover risks not covered or insufficiently covered by the Pillar 1 requirements (the Pillar 2A requirements). Our current Pillar 2A requirement as of
December 31, 2017 is 3.5% of risk weighted assets, of which at least 2.0% must be met with common equity Tier 1 capital.
In
addition to the requirements described above, CRD IV introduces several capital buffers, which are required to be met with common equity Tier 1 capital. The combination of (i) the capital conservation buffer (the CCB) (which is
being phased in gradually and will rise to 2.5% from 2019), (ii) the countercyclical capital buffer (CCyB) (which will vary over time depending on the effective rates set by regulators in countries where we have relevant credit
exposures) and (iii) the global systemically important institutions
(G-SII)
buffer (which
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is being phased in gradually before applying in full from 2019; as of January 1, 2018, the
G-SII
buffer (on an end-point basis) is 2%) constitutes the
combined buffer. As of December 31, 2017, the HSBC Groups combined buffer was estimated to be 2.72% of risk weighted assets (comprising a CCB, CCyB and
G-SII
buffer of 1.25%, 0.22% and
1.25%, respectively).
The PRA introduced a firm-specific Pillar 2B buffer (the PRA buffer), which is set at a level that the
PRA believes will ensure that a bank can continue to meet minimum Pillar 1 and Pillar 2A requirements during a stressed period and seeks to address any significant weaknesses in a firms risk management and governance. The PRA assesses the PRA
buffer applicable to an institution annually (or more often if a firms circumstances change). Where the PRA considers there is an overlap between the combined buffer and the PRA buffer, the PRA buffer will be set as the excess capital required
over and above the combined buffer. To the extent the PRA buffer is applicable, it must be met with 100% common equity Tier 1 capital, which will be in addition to the common equity Tier 1 capital used to meet the Pillar 1 and Pillar 2A capital
requirements.
The PRA also has introduced requirements in relation to minimum leverage ratios pursuant to which we are required to meet
(i) a minimum leverage ratio requirement set at 3.25% (calculated by dividing a firms Tier 1 capital by its total exposure measure (as defined in CRR)) applicable from October 3, 2017 (the PRA Leverage Ratio), (ii) an
additional leverage ratio buffer that is calibrated at 35% of the
G-SII
buffer, phased in from 2016 (ALRB) and (iii) a countercyclical leverage ratio buffer that is calibrated at 35% of the
CCyB (CCyLB). At least 75% of the Tier 1 capital required to meet the PRA Leverage Ratio must consist of common equity Tier 1 capital (with the remaining to be met with additional Tier 1 capital), while the ALRB and CCyLB must be met
entirely with common equity Tier 1 capital.
Under Article 141 of CRD (and any implementation of such provision in the UK or, as the case
may be, any succeeding provision amending or replacing such Article or any such implementing provision) (Article 141), Member States must require institutions that fail to meet the combined buffer to be subject to restricted
discretionary payments (which are defined broadly by CRD IV as payments or distributions relating to common equity Tier 1, variable remuneration and payments on additional Tier 1 instruments (such as the Securities)). Since these
requirements apply to institutions on a consolidated basis, the PRA can indirectly impose these restrictions on us. The restrictions for failing to meet the combined buffer is scaled according to the extent of the breach of the combined buffer and
calculated as a percentage of the profits of the institution since the last distribution of profits or discretionary payment. Such calculation will result in a maximum distributable amount in each relevant period. As an example, the scaling is such
that in the bottom quartile of the combined buffer, no discretionary payments will be permitted to be paid. As a consequence, in the event of breach of the combined buffer, it may be necessary to reduce discretionary payments in whole or in part,
including potentially cancelling (in whole or in part) interest payments in respect of the Securities.
The PRA also has the power under
section 55M of the Financial Services and Markets Act 2000 (the FSMA) (implementing Article 104 of CRD) to impose requirements on us, the effect of which may be to restrict or prohibit payments of interest to you, which is most likely to
materialize if at any time we are failing, or are expected to fail, to meet our capital requirements. If the PRA exercises its discretion, we will cancel (in whole or in part, as required by the PRA) interest payments in respect of the Securities.
In addition, failure to meet the PRA buffer or leverage ratios or buffers could result in the preparation of a capital restoration plan.
Such capital restoration plan may impose restrictions on discretionary payments, which may result in the cancellation (in whole or in part) of interest payments in respect of the Securities.
Changes to the capital and leverage frameworks may increase our capital requirements and may increase the risk that we will be subject to
restrictions on distributions (resulting in our being required to cancel (in whole or in part) interest payments in respect of the Securities. For example, the Basel Committee revised the Basel III capital framework in December 2017 to incorporate a
leverage ratio buffer for global systematically important banks
(G-SIBs)
(the Basel III leverage ratio buffer) that will be set at 50% of the Basel
G-SIB
buffer (which
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has been implemented in the EU as the
G-SII
buffer) and would restrict a
G-SIB,
such as the HSBC Group, from making
capital distributions (including interest payments on additional Tier 1 capital instruments, such as the Securities) if the
G-SIBs
Basel III leverage ratio (implemented in the UK as the PRA Leverage
Ratio) does not meet or exceed its Basel III leverage ratio buffer. The Basel III leverage ratio buffer must be implemented in the UK before it would take effect, and the Basel Committee has agreed on an implementation date of January 1, 2022.
Depending on how and when the Basel III leverage ratio buffer is implemented in the UK, we may be restricted from making interest payments on the Securities if we fail to meet the Basel III leverage ratio buffer as implemented. In addition, our
minimum regulatory capital requirements may increase as a result of increased provisioning under stress associated with our adoption of IFRS 9 as of January 1, 2018, the magnitude of which will depend upon several factors, including the
specified stress scenario. We expect the BOE to clarify the interaction between IFRS 9 and stress-testing frameworks in 2018. See
Risks Relating to the SecuritiesThe circumstances surrounding or triggering an Automatic
Conversion are unpredictable
.
Separately, certain aspects of the UK regulatory regime may restrict or prohibit us further from
making interest payments on the Securities in certain circumstances. For example, the BRRD (as defined under
Description of the SecuritiesDefinitions
) requires member states to enable their resolution authorities to set a minimum
requirement for eligible liabilities (MREL) for banks in their jurisdiction. The UK has implemented the MREL requirements through the UK Banking Act 2009, as amended (the Banking Act), and the Bank Recovery and Resolution (No
2) Order 2014 (which may be further amended to reflect the proposals published by the European Commission on November 23, 2016 for amendments to the BRRD and CRD IV (CRR2) in relation to the MREL requirements), and PRA Supervisory
Statement SS 16/16. The current UK MREL regime, which will take effect as of January 1, 2019 for material subsidiaries of
G-SIIs
and as of January 1, 2020 for all other firms and which will be phased
in until January 1, 2022, has been designed to be broadly compatible with the proposed term sheet published by the Financial Stability Board (the FSB) on total loss absorbing capacity (TLAC) requirements for G-SIBs
(which are referred to as
G-SIIs
under the EU proposals). Where a bank falls short of the total requirement for eligible liabilities, the PRA may use its powers to restrict or prohibit the firm from making
distributions where such a measure is appropriate and proportionate in the circumstances. As a result, the implementation of the TLAC requirements in the UK may result in the reduction of discretionary payments (in whole or in part), including the
cancellation (in whole or in part) of interest payments in respect of the Securities.
The HSBC Groups capital requirements,
including Pillar 2A requirements, by their nature, are calculated by reference to a number of factors, any one or a combination of which may not be easily observable or capable of calculation by you. Moreover, the interaction of restrictions on
distributions (including interest payments on the Securities) with, and impact of, the capital requirements and buffers and leverage framework applicable to the HSBC Group, as well as the current implementation of TLAC, remain uncertain in many
respects. Such uncertainty is expected to continue while the relevant authorities in the EU and the UK consult on and develop their proposals and provide guidance on the application of the rules and in light of Brexit. See
Risks
Relating to the Securities
Other changes in law may adversely affect your rights as a securityholder
. Changes to these rules, including from the implementation of CRR2, could result in more common equity Tier 1 capital and TLAC
required to be held by a financial institution in order to prevent the maximum distributable amount restrictions from applying. As a result, you may not be able to anticipate whether we will need to reduce discretionary payments, including by
cancelling interest payments (in whole or in part) in respect of the Securities, which may affect the value of your investment in the Securities.
As a holding company, our level of Distributable Items is affected by a number of factors, and insufficient Distributable Items may restrict our ability
to make interest payments on the Securities.
As a holding company, our level of Distributable Items is affected by a number of
factors, principally our ability to receive funds, directly or indirectly, from our operating subsidiaries in a manner that creates Distributable Items for us. Consequently, our future Distributable Items, and therefore our ability to make interest
payments (see
Risks Relating to the SecuritiesInterest on the Securities will be due and payable on an
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interest payment date only if it is not cancelled or deemed to have been cancelled, and we may cancel interest (in whole or in part), in our absolute and sole discretion, at any
time
), are a function of our existing Distributable Items, our future operating profits, our distributions and our ability to distribute or dividend profits from our operating subsidiaries up the HSBC Group structure to us. In addition,
our Distributable Items may also be adversely affected by the redemption of equity instruments or the servicing of other debt or equity instruments.
The ability of our subsidiaries to pay dividends and our ability to receive distributions from our investments in other entities is subject to
applicable local laws and other restrictions, including their respective regulatory, capital and leverage requirements, statutory reserves, financial and operating performance and applicable tax laws. These factors could limit the payment of
dividends and distributions to us by our subsidiaries, and to the extent that we are dependent on the receipt of such dividends and distributions, as opposed to other sources of income, such as interest and other payments from our subsidiaries, this
could in time restrict our ability to fund other operations or to maintain or increase our Distributable Items.
The level of our
Distributable Items may be further affected by changes to regulation or the requirements and expectations of applicable regulatory authorities. In particular, local capital or ring fencing requirements outside the UK could adversely affect our
Distributable Items in the future, such as, for example, the implementation of section 165 of the Dodd-Frank Act, including regulatory capital and internal TLAC requirements and buffers applicable to intermediate holding companies (IHCs)
in the United States and potential restrictions on such IHCs ability to engage in capital distributions.
Further, our Distributable
Items may be adversely affected by the performance of the HSBC Groups business in general, factors affecting its financial position (including capital and leverage), the economic environment in which the HSBC Group operates and other factors
outside of our control. See
Risks Relating to HSBCs Business
.
Our Distributable Items are also sensitive
to the accounting impact of factors such as the redemption of preference shares, restructuring costs and impairment charges and the carrying value of our investments in subsidiaries, which are carried at the lower of cost and their prevailing
recoverable amount. Recoverable amounts depend on discounted future cash flows, which can be affected by restructurings, such as the requirement to implement the UK ring-fencing regime or unforeseen events. Any of these factors could limit our
ability to maintain sufficient Distributable Items.
The Securities may trade with accrued interest even though interest may not be paid on the
relevant interest payment date.
The Securities may trade, and/or the prices for the Securities may appear, on the GEM of the Irish
Stock Exchange and in other trading systems with accrued interest. However, if a payment of interest on any interest payment date is cancelled or deemed to have been cancelled (in each case, in whole or in part) and thus is not due and payable (see
Risks Relating to the SecuritiesInterest on the Securities will be due and payable on an interest payment date only if it is not cancelled or deemed to have been cancelled, and we may cancel interest (in whole or in part), in
our absolute and sole discretion, at any time
), you will not be entitled to that interest payment (in whole or in part, as applicable) on the relevant interest payment date. This may affect your ability to sell your Securities in the
secondary market and, as a result, the value of your investment in the Securities.
The interest rate on the Securities will reset on each Reset
Date.
The interest rate on the 2023 Securities will initially be 6.250% per annum, from (and including) the issue date to (but
excluding) March 23, 2023, the initial 2023 Securities Reset Date. The interest rate on the 2028 Securities will initially be 6.500% per annum, from (and including) the issue date to (but excluding) March 23, 2028, the initial 2028 Securities Reset
Date. However, in each case, the interest rate will be reset every five years on each 2023 Securities Reset Date or 2028 Securities Reset Date, as applicable, such that the applicable per
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annum interest rate will be equal to the sum of 3.453%, with respect to the 2023 Securities, or 3.606%, with respect to the 2028 Securities, and the applicable Mid-Market Swap Rate on the
relevant Reset Determination Date. As a result, the interest rate following any 2023 Securities Reset Date or 2028 Securities Reset Date may be less than the initial interest rate and/or the interest rate that applies immediately prior to such 2023
Securities Reset Date or 2028 Securities Reset Date, respectively, which would affect the amount of any interest payments under the 2023 Securities and the 2028 Securities, as applicable, and, by extension, could affect their market value.
We may redeem the Securities for certain tax or regulatory reasons or on any Reset Date.
We may redeem the Securities in whole (but not in part) upon the occurrence of a Tax Event or a Capital Disqualification Event, as more
particularly described under
Description of the SecuritiesRedemptionSpecial Event Redemption
. Certain of such events may occur at any time after the issue date and it is therefore possible that we would be able to
redeem the Securities at any time after the issue date. A Tax Event will include, among other things, a change in law (or in its application or official interpretation) after the issue date whereby the deductibility for UK tax purposes of interest
expense on the Securities is restricted or the Securities would no longer be treated as loan relationships for UK tax purposes or the Securities (or any part thereof) would become treated as a derivative or an embedded derivative for UK tax
purposes.
Moreover, we may redeem the 2023 Securities and the 2028 Securities in whole (but not in part) on any 2023 Securities Reset
Date or 2028 Securities Reset Date, respectively, as more particularly described under
Description of the SecuritiesRedemptionOptional Redemption
.
Our optional redemption on any 2023 Securities Reset Date or 2028 Securities Reset Date may limit the market value of the Securities to the
redemption price during the period shortly before the 2023 Securities Reset Date or the 2028 Securities Reset Date, as applicable. Moreover, if we redeem the 2023 Securities or the 2028 Securities, as applicable, in any of the circumstances
mentioned above, you may not be able to reinvest the redemption proceeds in securities offering a comparable yield.
In addition, any
early redemption of any of the Securities may be subject to conditions imposed by the Relevant Regulator, regardless of whether such redemption would be favorable to you. In particular, Article 78(1) of CRR provides that a competent authority
will grant permission for a redemption or repurchase if either: (i) prior to or simultaneously with such redemption or repurchase, we replace the Securities being redeemed or repurchased with our own funds instruments of equal or higher quality
at terms that are sustainable for our income capacity; or (ii) we have demonstrated to the satisfaction of the Relevant Regulator that our own funds would, following such redemption or repurchase, exceed the sum of (x) the capital ratios
set by Article 92(1) of CRR (broadly, a CET1 capital ratio of 4.5%, a Tier 1 capital ratio of 6% and a total capital ratio of 8%) and (y) the combined buffer, in each case, by a margin that the Relevant Regulator may consider necessary to
capture risks to which we are or might be exposed (taking into account various quantitative and qualitative assessments, reviews and evaluations specified in Article 104(3) of CRD).
The Securities may be subject to an Automatic Conversion and upon the occurrence of such an event you could lose all or part of the value of your
investment in the Securities due to the deterioration in the realizable value of any Conversion Shares.
A Capital Adequacy
Trigger Event will occur if at any time the
end-point
CET1 Ratio is less than 7.0%, as determined by us, the Relevant Regulator or any agent of the Relevant Regulator appointed for such purpose by the
Relevant Regulator. See
Risks Relating to the SecuritiesThe circumstances surrounding or triggering an Automatic Conversion are unpredictable
.
Upon the occurrence of a Capital Adequacy Trigger Event, an Automatic Conversion will occur on the Conversion Date. Following an Automatic
Conversion, you will receive only (i) the Conversion Shares (based on the Conversion Price) or (ii) if we elect, in our sole and absolute discretion, that a Conversion Shares Offer be
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made, the Conversion Shares Offer Consideration, which will comprise Conversion Shares (based on the Conversion Price) and/or cash (based on the Conversion Shares Offer Price) depending on the
results of the Conversion Shares Offer. See
Description of the SecuritiesAutomatic Conversion Upon Capital Adequacy Trigger Event
and
Risks Relating to the SecuritiesYou may receive Conversion Shares
Offer Consideration instead of Conversion Shares upon a Capital Adequacy Trigger Event and would not know the composition of any Conversion Shares Offer Consideration until the end of the Conversion Shares Offer Period
. The Automatic
Conversion will be irrevocable and, following the occurrence of an Automatic Conversion, you will not be entitled to any compensation in the event of any improvement in the
end-point
CET1 Ratio after the
Conversion Date.
Conversion Shares are our ordinary shares to be issued to the Conversion Shares Depository (or to the
relevant recipient in accordance with the terms of the Securities) following an Automatic Conversion. Because a Capital Adequacy Trigger Event will only occur at a time when the
end-point
CET1 Ratio has
deteriorated significantly, a Capital Adequacy Trigger Event may be accompanied by a deterioration in the market price of our ordinary shares, which may be expected to continue after the occurrence of a Capital Adequacy Trigger Event. In addition,
there may be a delay in your receiving your Conversion Shares following a Capital Adequacy Trigger Event (in particular if we elect that a Conversion Shares Offer be conducted), during which time the market price of our ordinary shares may further
decline. Therefore, the realizable value of any Conversion Shares received may be significantly less than (x) the sterling (or any other currency in which our ordinary shares may trade) equivalent of the Conversion Price and/or (y) the
Conversion Shares Offer Price. As a result, you may lose all or part of the value of your investment in the Securities following an Automatic Conversion. See also
Risks Relating to the SecuritiesYou will bear the risk of
depreciation of sterling against the US dollar
.
You will have limited rights after a Capital Adequacy Trigger Event and the issuance of
the Conversion Shares to the Conversion Shares Depository (or to the relevant recipient in accordance with terms of the Securities) will constitute an irrevocable and automatic release of all of our obligations in respect of the Securities.
Following an Automatic Conversion, we will be obligated to issue the Conversion Shares to the Conversion Shares Depository (or to
the relevant recipient in accordance with the terms of the Securities), which will hold the Conversion Shares on your behalf. If we do not deliver the Conversion Shares to the Conversion Shares Depositary following a Capital Adequacy Trigger Event,
the only claims you will have against us will be for specific performance to have such Conversion Shares issued and delivered. Moreover, you will not have any rights against us with respect to repayment of the principal amount of the Securities or
payment of interest or any other amount on, or in respect of, the Securities, in each case that is not due and payable, which liabilities will be automatically released. Accordingly, the principal amount of the Securities will equal zero at all
times thereafter and any interest will be cancelled or deemed to have been cancelled at all times thereafter and will not be due and payable, including any interest in respect of an interest period ending on any interest payment date falling between
the date of a Capital Adequacy Trigger Event and the Conversion Date.
Once the Conversion Shares are delivered to the Conversion Shares
Depository (or to the relevant recipient in accordance with the terms of the Securities), all of our obligations under the Securities will be irrevocably and automatically released in consideration of such issuance to the Conversion Shares
Depository (or to the relevant recipient in accordance with the terms of the Securities), and under no circumstances will such released obligations be reinstated. With effect from the Conversion Date, you will have recourse only to the Conversion
Shares Depository for the delivery to you of Conversion Shares or, if we elect that a Conversion Shares Offer be made, of any Conversion Shares Offer Consideration to which you are entitled.
In addition, we have not yet appointed a Conversion Shares Depository and we may not be able to appoint a Conversion Shares Depository if an
Automatic Conversion occurs. In such case, we will effect, by means we deem reasonable under the circumstances (including, without limitation, issuance of the Conversion Shares to another nominee or to you directly), the issuance and/or delivery of
the Conversion Shares or Conversion Shares
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Offer Consideration, as applicable, to you. Such arrangements may be disadvantageous to, and more restrictive on, you, such as involving a longer period of time before you receive your Conversion
Shares or Conversion Shares Offer Consideration, as applicable, than would be the case under the arrangements expected to be entered into with a Conversion Shares Depository. Nevertheless, such issuance also will irrevocably and automatically
release all of our obligations under the Securities as if the Conversion Shares had been issued to the Conversion Shares Depository.
You will bear
the risk of changes in the
end-point
CET1 Ratio.
The value of your Securities is expected
to be affected by changes in the
end-point
CET1 Ratio. Any indication that the
end-point
CET1 Ratio is moving towards the level of a Capital Adequacy Trigger Event may
have an adverse effect on the value of your Securities. Moreover, we currently only publicly report the
end-point
CET1 Ratio quarterly as of the period end, and therefore, there may be no prior warning of
adverse changes in our
end-point
CET1 Ratio. Any unexpected change in the
end-point
CET1 Ratio that we report or anticipate in our quarterly reports or otherwise, or
that is anticipated by the market, may lead to an immediate and significant decrease in the value of your Securities. See
Risks Relating to the SecuritiesThe circumstances surrounding or triggering an Automatic Conversion are
unpredictable
for a description of factors that may increase the risk of occurrence of a Capital Adequacy Trigger Event, including the implementation of CRD IV requirements in the UK after the date hereof.
The circumstances surrounding or triggering an Automatic Conversion are unpredictable.
The occurrence of a Capital Adequacy Trigger Event is inherently unpredictable and depends on a number of factors, including those discussed in
greater detail in the following paragraphs, any of which may be outside our control.
A Capital Adequacy Trigger Event could occur on any
date on which the
end-point
CET1 Ratio is below 7.0%, as determined by us, the Relevant Regulator or any agent of the Relevant Regulator appointed for such purpose by the Relevant Regulator. Although we
currently publicly report the
end-point
CET1 Ratio only as of the last day of each of our financial quarters, the PRA, as part of its supervisory activity, may instruct us to calculate such ratio as of any
date, including if we are subject to recovery and resolution actions by the relevant UK resolution authority. Moreover, we might otherwise determine to calculate such ratio in our own discretion. Accordingly, a Capital Adequacy Trigger Event could
occur on any date.
Separately, changes in the
end-point
CET1 Ratio may be caused by changes in
the amount of CET1 Capital and/or Risk Weighted Assets (each of which will be calculated by us and will be binding on the trustee, the paying agent and you). Accordingly, the
end-point
CET1 Ratio could be
affected by one or more factors, including changes to our business and our future earnings, dividend payments, regulatory changes (including changes to definitions, interpretations and calculations of regulatory capital ratios and their components,
including CET1 Capital and Risk Weighted Assets, as described further below), actions that we are required to take at the discretion of the Relevant Regulator, accounting rule changes (as described further below), tax law changes, the HSBC
Groups ability to manage Risk Weighted Assets in both its ongoing businesses and those it may seek to exit and foreign currency movements (due to changes in foreign exchange rates resulting in changes to the US dollar equivalent value of
foreign currency denominated capital resources and Risk Weighted Assets).
The actual impact of CRD IV on UK capital ratios may also be
subject to future change, whether as a result of further changes to CRD IV agreed by EU legislators (including due to CRR2), binding regulatory technical standards adopted or to be developed by the European Banking Authority (the EBA) or
changes to the way in which the PRA interprets and applies these requirements to UK banks (including with respect to individual model approvals under the predecessors to CRD IV). In addition, the single rulebook Q&A tool introduced by the EBA,
although having no binding force, may influence the interpretation and application of CRD IV, including the related delegated or implementing acts adopted by the European Commission. Further, following Brexit,
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there is uncertainty as to how regulatory developments may impact the existing framework relating to capital requirements. See
Risks Relating to the Securities
Other
changes in law may adversely affect your rights as a securityholder
.
The PRA has published several supervisory statements and
consultation papers setting out the PRAs expectations in relation to capital and leverage ratios and the quality of capital, respectively, including SS 45/15 and PS 27/15 (each released on December 7, 2015) and PS 21/17 (released in
October 2017). Nonetheless, if the PRA rules, guidance or expectations in relation to capital or leverage were to be amended in the future in a manner other than as set out in the statements, and depending on the content of final binding regulatory
technical standards developed by the EBA, it could be materially more difficult for the HSBC Group to maintain compliance with prudential requirements. Furthermore, CRR2 includes measures intended to make the Basel III leverage ratio binding on EU
institutions. Additionally, in December 2017, the Basel Committee adopted revisions to the Basel capital framework that include the introduction of the Basel III leverage ratio buffer, as well as changes to the credit and operational risk frameworks
(including an output floor that limits institutions ability to reduce total risk-weighted assets). Parts of these proposals are intended to be implemented by national authorities by 2022. Any such changes, either individually and/or in
aggregate, may lead to further unexpected enhanced requirements in relation to the HSBC Groups capital and may result in a need for further management actions to meet the changed requirements, such as: increasing capital, reducing leverage and
risk weighted assets, modifying legal entity structure (including with regard to issuance and deployment of capital and funding for the HSBC Group) and changing the HSBC Groups business mix or exiting other businesses and/or undertaking other
actions to strengthen the HSBC Groups capital position. The implementation of future changes to the regulatory regime under CRR2 and/or CRD IV or any successor legislation in the UK subsequent to the date hereof may individually and/or in the
aggregate further negatively affect the HSBC Groups
end-point
CET1 Ratio and thus increase the risk of a Capital Adequacy Trigger Event.
Applicable accounting rules, or changes to regulatory adjustments that modify the regulatory impact of accounting rules, may affect the
calculation of the
end-point
CET1 Ratio. For example, as of January 1, 2018, we have adopted IFRS 9, which is expected to increase impairment charges to reflect expected credit losses and may cause
impairment charges to be more volatile. Over time, future impairment charges may cause significant decreases in our
end-point
common equity Tier 1 capital ratio, especially given that the transitional
arrangements published by the EU (which soften the impact that IFRS 9 has on our loan loss allowances) will be phased out by the end of 2022. In addition, we continue to test and refine our models for purposes of determining expected credit losses
in preparation for the disclosure required in our financial statements for the year ending December 31, 2018, and any revisions to our models may result in significant changes to our regulatory capital position. Even if changes in applicable
accounting rules, or changes to regulatory adjustments that modify the regulatory impact of accounting rules, are not yet in force as of the relevant calculation date, the Relevant Regulator could require us to reflect such changes in any particular
calculation of the
end-point
CET1 Ratio. Moreover, the HSBC Groups
end-point
CET1 Ratio is a
non-IFRS
measure, and our
interpretation of CRD IV and the basis of our calculation of this financial measure may be different from those of other financial institutions.
Because of the inherent uncertainty regarding whether a Capital Adequacy Trigger Event will occur, it will be difficult to predict when, if at
all, an Automatic Conversion may occur. Accordingly, the trading behavior of the Securities, including prices, volatility and liquidity, may be affected by any threat of a Capital Adequacy Trigger Event and, as a result, the Securities are not
necessarily expected to follow the trading behavior associated with other types of securities, including our debt securities. As a result, you may not be able to sell your Securities easily, or at all, or at prices that will provide them with a
yield comparable to other types of subordinated securities. In addition, the risk of an Automatic Conversion could lead to a decline in the price of our ordinary shares, which could have a material adverse effect on the market value of the
Conversion Shares you receive.
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The
end-point
CET1 Ratio will be affected by our business
decisions and our and your interests may not be aligned.
As discussed in
Risks Relating to the SecuritiesThe
circumstances surrounding or triggering an Automatic Conversion are unpredictable
, the
end-point
CET1 Ratio could be affected by a number of factors, including the HSBC Groups decisions
relating to its businesses and operations, as well as the management of its capital position. The HSBC Group will have no obligation to consider your interests in connection with such decisions, including in respect of its capital management. Such
decisions could cause you to lose all or part of the value of your investment in the Securities due to their effect on the
end-point
CET1 Ratio, and you will not have any claim against us or any other member
of the HSBC Group relating to such decisions, regardless of whether they result in the occurrence of a Capital Adequacy Trigger Event.
A Capital
Adequacy Trigger Event may be triggered even when our common equity Tier 1 ratio as calculated by applying the Transitional Provisions is above 7.0%, which could cause you to lose all or part of the value of your investment in the Securities.
Under CRD IV, we are required to calculate our consolidated capital resources for regulatory purposes on the basis of common
equity Tier 1 capital instead of core Tier 1 capital (as we have historically calculated and published). We also are required to calculate our risk weighted assets, which represent our assets adjusted for their associated risk, on
a different basis than we did prior to CRD IV. CRD IV sets out a minimum pace of introduction of these enhanced capital requirements and applies transitional provisions as set out in Part Ten of the CRR (the Transitional Provisions). The
Transitional Provisions are designed to implement certain CRD IV requirements in stages over a prescribed period; however, each of the Member States has the discretion to accelerate that minimum pace of transition.
In the UK, the PRA accelerated the introduction of certain of the enhanced capital requirements under CRD IV. In accordance with the
PRAs rules and supervisory statements published on December 19, 2013, the PRA requires the HSBC Group to meet certain capital targets within certain prescribed timeframes, without regard to any Transitional Provisions. Accordingly, for
the purposes of the Securities, we will calculate the CET1 Capital and Risk Weighted Assets without applying the Transitional Provisions and will instead calculate the
end-point
CET1 Ratio on a
so-called
fully loaded basis, which is a more stringent basis than currently applicable under the CRD IV regime and will lead to the
end-point
CET1 Ratio being
lower than it would be were we to calculate the common equity Tier 1 ratio applying the Transitional Provisions to our calculation of CET1 Capital and Risk Weighted Assets. As a result, a Capital Adequacy Trigger Event may be triggered (because the
end-point
CET1 Ratio is less than 7.0%) even when our common equity Tier 1 ratio as calculated by applying the Transitional Provisions is above 7.0%, which could cause you to lose all or part of the value of your
investment in the Securities. See
Risks Relating to the SecuritiesThe Securities may be subject to an Automatic Conversion and upon the occurrence of such an event you could lose all or part of the value of your investment in
the Securities due to the deterioration in the realizable value of any Conversion Shares
.
Upon the occurrence of a Capital Adequacy
Trigger Event, your rights will be subordinated further.
Upon the occurrence of a Capital Adequacy Trigger Event, you will rank as
a holder of our ordinary shares (or beneficial owner of our ordinary shares as evidenced by the Securities). Accordingly, you will be subordinated further on a
winding-up
or administration due to the change in
your status from being the holder of an instrument ranking
pari passu
with holders of our most senior class of preference shares (and therefore ahead of holders of our ordinary shares). Even if other creditors with claims that rank
pari
passu
with the Securities, or junior to the Securities but senior to our ordinary shares, are paid in full, following a Capital Adequacy Trigger Event, you will have no rights to the repayment of the principal amount of the Securities or the
payment of interest on the Securities that is not due or payable. As a result, upon the occurrence of a Capital Adequacy Trigger Event, you may lose all or part of your investment in the Securities irrespective of whether we have sufficient assets
available to settle in
winding-up
proceedings or otherwise what would have been your claims as
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a securityholder, the claims of other creditors subordinated to the same extent as the Securities and the claims of other creditors subordinated to a greater extent than the Securities but senior
to our ordinary shares.
You may receive Conversion Shares Offer Consideration instead of Conversion Shares upon a Capital Adequacy Trigger Event
and would not know the composition of any Conversion Shares Offer Consideration until the end of the Conversion Shares Offer Period.
We may elect, in our sole and absolute discretion, that the Conversion Shares Depository conduct a Conversion Shares Offer. If all of the
Conversion Shares are sold in the Conversion Shares Offer, you will be entitled to receive, in respect of each Security, the
pro rata
share of the cash proceeds from the sale of the Conversion Shares attributable to such Security converted
from sterling into US dollars at the Prevailing Rate as of the date that is three Depository Business Days prior to the relevant Settlement Date as determined by the Conversion Shares Depository (less the
pro rata
share of any foreign
exchange transaction costs) (the
pro rata
cash component). If some but not all of the Conversion Shares are sold in the Conversion Shares Offer, you will be entitled to receive, in respect of each Security, (a) the
pro
rata
cash component and (b) the
pro rata
share of the Conversion Shares not sold pursuant to the Conversion Shares Offer attributable to such Security rounded down to the nearest whole number of Conversion Shares (the
pro
rata
Conversion Shares component). If no Conversion Shares are sold in a Conversion Shares Offer, you will be entitled to receive, in respect of each Security, the relevant Conversion Shares attributable to such Security rounded down to
the nearest whole number of Conversion Shares.
Any
pro rata
cash component will be subject to deduction from any such cash
proceeds of an amount equal to the
pro rata
share of any stamp duty, stamp duty reserve tax, or any other capital, issue, transfer, registration, financial transaction or documentary tax that may arise or be paid as a consequence of the
transfer of any interest in the Conversion Shares to the Conversion Shares Depository (or the relevant recipient in accordance with the terms of the Securities) in order for the Conversion Shares Depository (or the relevant recipient in accordance
with the terms of the Securities) to conduct the Conversion Shares Offer. Moreover, no interest or other compensation is payable in respect of the period elapsed from the Conversion Date to the date of delivery of any
pro rata
cash component
or Conversion Shares.
Furthermore, neither the occurrence of a Capital Adequacy Trigger Event nor, following the occurrence of a Capital
Adequacy Trigger Event, the election (if any) by us to undertake a Conversion Shares Offer, will preclude us from undertaking a rights issue or other equity issuance at any time on such terms as we deem appropriate, at our sole discretion,
includingfor the avoidance of doubtthe offer of our ordinary shares at or below the Conversion Shares Offer Price. Additionally, there can be no assurance that the Conversion Shares Offer would be conducted on an
SEC-registered
basis.
In addition, we or the Conversion Shares Depository will provide notice of the
results of any Conversion Shares Offer only at the end of the Conversion Shares Offer Period (which may be as many as 40 business days following the delivery of the Conversion Shares Offer Notice). Accordingly, you would not know the composition of
the Conversion Shares Offer Consideration to which you may be entitled until the end of the Conversion Shares Offer Period.
Following an Automatic
Conversion, the Securities will remain in existence until the applicable Cancellation Date for the sole purpose of evidencing your right to receive Conversion Shares or Conversion Shares Offer Consideration, as applicable, from the Conversion Shares
Depository (or the relevant recipient in accordance with the terms of the Securities), and your rights will be limited accordingly.
Following an Automatic Conversion (and thus the issuance of the Conversion Shares to the Conversion Shares Depository on the Conversion Date),
the Securities will remain in existence until the applicable Cancellation Date (at which point the Securities will be cancelled) for the sole purpose of evidencing your right to receive Conversion Shares or the Conversion Shares Offer Consideration,
as applicable, from the Conversion
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Shares Depository (or the relevant recipient in accordance with the terms of the Securities). If we have been unable to appoint a Conversion Shares Depository, we will effect, by means we deem
reasonable under the circumstances (including, without limitation, issuance of the Conversion Shares to another nominee or to the securityholders directly), the issuance and/or delivery of the Conversion Shares or Conversion Shares Offer
Consideration, as applicable, to you. See also
Risks Relating to the SecuritiesYou will have limited rights after a Capital Adequacy Trigger Event and Issuance of the Conversion Shares to the Conversion Shares Depository (or to
the relevant recipient in accordance with terms of the Securities) will constitute an irrevocable and automatic release of all of our obligations in respect of the Securities
. Moreover, the Securities may cease to be admitted to the Irish
Stock Exchanges Official List and to be traded on the GEM (the exchange regulated market of the Irish Stock Exchange) after the Suspension Date.
Although we currently expect that beneficial interests in the Securities will be transferrable between the Conversion Date and the Suspension
Date, there is no guarantee that this will be the case. Even if the Securities are transferable following the Automatic Conversion, there is no guarantee that an active trading market will exist for the Securities, and the Securities may cease to be
admitted to the Irish Stock Exchanges Official List and to be traded on the GEM before the Suspension Date. Accordingly, the price received for the sale of any beneficial interest in a Security during this period may not reflect the market
price of such Security or the Conversion Shares. Furthermore, transfers of beneficial interests in the Securities may be restricted following the Conversion Date. For example, if the clearance and settlement of transactions in the Securities is
suspended by DTC at an earlier time than currently expected, it may not be possible to transfer beneficial interests in the Securities in DTC and trading in the Securities may cease.
In addition, we have been advised by DTC that it will suspend all clearance and settlement of transactions in the Securities on the Suspension
Date. As a result, you will not be able to settle the transfer of any Securities through DTC following the Suspension Date, and any sale or other transfer of the Securities that you may have initiated prior to the Suspension Date that is scheduled
to settle after the Suspension Date will be rejected by DTC and will not be settled through DTC.
Moreover, although you will become a
beneficial owner of your
pro rata
share of Conversion Shares upon the issuance of such Conversion Shares to the Conversion Shares Depository and the Conversion Shares will be registered in the name of the Conversion Shares Depository (or the
relevant recipient in accordance with the terms of the Securities), you will not be able to sell or otherwise transfer any Conversion Shares until such time as they are delivered to you and registered in your name.
You must submit an Automatic Conversion Settlement Notice and may need an account with a clearing system in order to receive delivery of the Conversion
Shares or any Conversion Shares Offer Consideration, as applicable, and you will be required to provide further documentation if such Automatic Conversion Settlement Notice is delivered after the Notice
Cut-off
Date.
In order to obtain delivery of the relevant Conversion Shares or any
Conversion Shares Offer Consideration, as applicable, you (or your nominee, custodian or other representative) must deliver an Automatic Conversion Settlement Notice (and the relevant Securities, if held in definitive form) to the Conversion Shares
Depository. The Automatic Conversion Settlement Notice must contain certain information, including your CREST or other clearing system account details (assuming the Conversion Shares are a participating security in a clearing system). Accordingly,
in such cases, you (or your nominee, custodian or other representative) must have an account with the relevant clearing system in order to receive the Conversion Shares or
pro rata
Conversion Shares component, as applicable. Moreover, the
Conversion Shares Depository will determine, in its sole and absolute discretion, whether your Automatic Conversion Settlement Notice has been properly completed and delivered, and such determination will be conclusive and binding on you. If you
fail to properly complete and deliver an Automatic Conversion Settlement Notice (and the relevant Securities, if held in definitive form) the Conversion Shares Depository will be entitled to treat such Automatic Conversion Settlement Notice as null
and void.
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Although the Conversion Shares Depository will continue to hold the relevant Conversion
Shares or Conversion Shares Offer Consideration, as applicable, if you fail to properly complete and deliver an Automatic Conversion Settlement Notice on or before the Notice
Cut-off
Date, the relevant
Securities will be cancelled on the Final Cancellation Date (which will be a date at most 15 business days after the Notice
Cut-off
Date). Moreover, after the Notice
Cut-off
Date you will continue to be required to provide an Automatic Conversion Settlement Notice, as well as evidence of your entitlement to the relevant Conversion Shares or the Conversion Shares Offer
Consideration, as applicable. Such evidence must be satisfactory to the Conversion Shares Depository in its sole and absolute discretion in order for you to receive delivery of such Conversion Shares or Conversion Shares Offer Consideration, as
applicable.
We will have no liability to you for any loss resulting from your failure to receive any Conversion Shares or Conversion
Shares Offer Consideration, as applicable, or from any delay in the receipt thereof, in each case as a result of your (or your custodian, nominee, broker or other representative) failing to duly submit an Automatic Conversion Settlement Notice (and
the relevant Securities, if held in definitive form) on a timely basis or at all.
You will have limited remedies.
The remedies under the Securities are more limited than those typically available to our unsubordinated creditors.
There is no right of acceleration in the case of
non-payment
of principal or interest on the
Securities or of our failure to perform any of our obligations under or in respect of the Securities. Payment of the principal amount of the Securities will be accelerated only in the event of certain events of a
winding-up
or administration involving us that constitute a
Winding-up
Event before the occurrence of a Capital Adequacy Trigger Event. Under the terms of the Indenture,
a
Winding-up
Event will result if (x) a court of competent jurisdiction in England (or such other jurisdiction in which we may be organized) makes an order for our
winding-up
which is not successfully appealed within 30 calendar days of the making of such order, (y) our ordinary shareholders adopt an effective resolution for our
winding-up
(other than, in the case of either (x) or (y) above, under or in connection with a scheme of reconstruction, merger or amalgamation not involving a bankruptcy or insolvency) or
(z) following the appointment of an administrator, the administrator gives notice that it intends to declare and distribute a dividend.
The sole remedy against us available for recovery of amounts owing in respect of any
non-payment
of
any amount that has become due and payable under the Securities is, subject to certain conditions and to the provisions set forth in
Description of the SecuritiesDefault and RemediesNo Other Remedies
, for the trustee,
in accordance with the Indenture, to institute proceedings in England (or such other jurisdiction in which we may be organized) (but not elsewhere) for our
winding-up
and/or prove in our
winding-up
and/or claim in our liquidation or administration.
Although the trustee may without further
notice institute such proceedings against us as it may deem fit to enforce any term, obligation or condition binding upon us under the Securities or the Indenture (other than any of our payment obligations under, or arising from, the Securities or
the Indenture, including payment of any principal or interest, including Additional Amounts) (such obligation, a Performance Obligation), the sole and exclusive remedy that the trustee (acting on your behalf) and/or you may seek under
the Securities and the Indenture is specific performance under the laws of the State of New York. Moreover, to the extent any judgment or other award given in such proceedings requires the payment of money by us, whether by way of damages or
otherwise (a Monetary Judgment), the trustee (acting on your behalf) and/or you may not enforce, and will not be entitled to enforce, or otherwise claim such Monetary Judgment against us, except by proving such Monetary Judgment in our
winding-up
or administration. As such, we will not be obliged to pay any sum or sums, in cash or otherwise (including damages), as a consequence of the institution of any such proceedings for a breach of any
Performance Obligation, except where you prove any Monetary Judgment in our
winding-up
or administration.
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Furthermore, by your acquisition of the Securities, you will acknowledge and agree that
(i) the sole and exclusive remedy that you and/or the trustee (acting on your behalf) may seek under the Securities and the Indenture for a breach by us of a Performance Obligation is specific performance under the laws of the State of New
York, (ii) you will not (and waive any right to) seek, and will not (and waive any right to) direct the trustee (acting on your behalf) to seek, any other remedy against us in respect of any breach by us of a Performance Obligation,
(iii) you will not (and waive any right to) enforce, and will not be entitled to enforce (and waive any such entitlement), or otherwise claim (and waive any other right to claim) a Monetary Judgment against us, except by proving such Monetary
Judgment in our
winding-up
or administration and (iv) to the extent permitted by the Trust Indenture Act, you will waive any and all claims, in law and/or in equity, against the trustee for, and agree not
to initiate a suit, against the trustee in respect of, and agree that the trustee will not be liable for, any action that the trustee takes, or abstains from taking, in connection with your right to enforce a Performance Obligation in accordance
with the terms of the Indenture.
You will bear the risk of depreciation of sterling against the US dollar.
The Conversion Price is fixed at $3.7881 per Conversion Share, subject to certain anti-dilution adjustments (see
Description of the
SecuritiesAnti-dilutionAdjustment of Conversion Price and Conversion Shares Offer Price
). Our ordinary shares trade primarily in sterling, as well as in Hong Kong dollars. The US dollar value of our ordinary shares may
fluctuate depending on the exchange rate between the US dollar and sterling (or any other currency in which our ordinary shares may trade). For example, if sterling (or any other currency in which our ordinary shares may trade) depreciates relative
to the US dollar, the US dollar value of our ordinary shares will decrease. Because the Conversion Price is denominated in US dollars, depreciation of sterling (or any other currency in which our ordinary shares may trade) against the US dollar may
result in the US dollar value of any Conversion Shares you receive following an Automatic Conversion being significantly less than the price implied by the Conversion Price.
If a Conversion Shares Offer is made, the Conversion Shares Offer Price will be in sterling and the cash consideration received for any
Conversion Shares sold in such Conversion Shares Offer initially will be denominated in sterling. Such sterling cash consideration will be converted into US dollars at the Prevailing Rate as of the date on which the cash proceeds are delivered to
you (less the
pro rata
share of any foreign exchange transaction costs). Accordingly, a decline in the value of sterling relative to the US dollar between the issue date and the date on which the cash proceeds are converted into US dollars
will result in your receiving an amount of cash proceeds in US dollars that is less than if the Conversion Shares had been sold at the Conversion Price.
In addition, following a Capital Adequacy Trigger Event there may be a delay in your receiving your Conversion Shares (in particular if we
elect that a Conversion Shares Offer be conducted) and/or a delay in converting the sterling cash consideration into US dollars after the Conversion Shares Offer, during which time the exchange rate of sterling against the US dollar may further
decline.
No interest or other compensation is payable in the event of a loss by you due to foreign currency conversions.
As a result, the realizable value in US dollars of the Conversion Shares upon a Capital Adequacy Trigger Event could be substantially lower
than that implied by the US dollar price paid for the Securities at the time of their purchase.
You do not have anti-dilution protection in all
circumstances.
The number of Conversion Shares to be issued to the Conversion Shares Depository (or to the relevant recipient in
accordance with the terms of the Securities) on the Conversion Date will equal the quotient obtained by dividing the (i) aggregate principal amount of the Securities then outstanding immediately prior to the Automatic Conversion on the
Conversion Date by (ii) the Conversion Price, rounded down, if necessary, to the
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nearest whole number of Conversion Shares. The Conversion Price is fixed at the time of issue of the Securities at $3.7881 per Conversion Share. Although the Conversion Price will be adjusted in
certain instances in an effort to preserve your economic interest in us, including if there is a consolidation, reclassification or subdivision of our ordinary shares, an issuance of ordinary shares in certain circumstances by way of capitalization
of profits or reserves, certain issues of rights for our ordinary shares, an Extraordinary Dividend or a Qualifying Takeover Event, adjustments are not required for every corporate or other event that may affect the market price of the Conversion
Shares and an Independent Financial Adviser may make modifications as it determines to be appropriate. See
Description of the SecuritiesAnti-Dilution
and
Description of the SecuritiesQualifying Takeover
Event
. The adjustment events that are included are less extensive than those often included in the terms of convertible securities. Moreover, there will be no adjustment to the Conversion Price if a Takeover Event occurs that is not a
Qualifying Takeover Event (because the Acquirer is not an Approved Entity or the New Conversion Condition is not satisfied). As a result, the Conversion Price or the New Conversion Price, as applicable, may not reflect the market price of our
ordinary shares or the Approved Entity Shares, respectively, which could be significantly lower than the Conversion Price or the New Conversion Price, respectively. Accordingly, the occurrence of events in respect of which no adjustment to the
Conversion Price or New Conversion Price, as applicable, is made may adversely affect the value of the Securities.
If a Takeover Event occurs, the
Securities may be convertible into shares in an entity other than us or into unlisted shares.
If a Takeover Event is a Qualifying
Takeover Event (because the Acquirer is an Approved Entity and the New Conversion Condition is satisfied), then following an Automatic Conversion the Securities will become convertible or exchangeable into the Approved Entity Shares at the New
Conversion Price as described under
Description of the SecuritiesAnti-Dilution
and
Description of the SecuritiesQualifying Takeover Event
. There can be no assurance as to the nature of any such
Acquirer, or of the risks associated with becoming an actual or potential shareholder in such Acquirer and, accordingly, a Qualifying Takeover Event may have an adverse effect on the value of the Securities.
In addition, we and the Acquirer have certain discretion in determining whether a Qualifying Takeover Event has occurred as it requires the
New Conversion Condition to be satisfied. The New Conversion Condition will be satisfied only if we and the Acquirer enter into arrangements to our satisfaction for delivery of the Approved Entity Shares upon an Automatic Conversion. If we are
unable to enter into such arrangements within seven days following the occurrence of a Takeover Event, the New Conversion Condition would not be satisfied.
If our ordinary shares become delisted following a
non-Qualifying
Takeover Event or otherwise, the
Securities will be convertible into unlisted ordinary shares upon an Automatic Conversion. Unlisted shares may be more illiquid than listed shares, and therefore, may have little or no resale value. In addition, where a
non-Qualifying
Takeover Event occurs because the Acquirer is a Governmental Entity (and therefore not an Approved Entity), the Securities will not be convertible into, or exchangeable for, any securities or other
instruments of such Governmental Entity or any other person or entity (other than us). Accordingly, a Takeover Event that is not a Qualifying Takeover Event is likely to have an adverse effect on the value of the Securities.
Prior to the Conversion Date, you will not be entitled to any rights with respect to our ordinary shares, but will be subject to all changes made with
respect to our ordinary shares.
The exercise of voting rights and rights related thereto with respect to our ordinary shares will
be possible only after delivery of the Conversion Shares following the Conversion Date and the registration of the person entitled to such Conversion Shares in our share register as an ordinary shareholder with voting rights in accordance with the
provisions of, and subject to the limitations provided in, our Articles of Association.
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Under the terms of the Securities, you will agree to be bound by the exercise of any UK
bail-in
power by the relevant UK resolution authority.
You will agree to be bound by the
exercise of any UK
bail-in
power (as defined under
Description of the SecuritiesDefinitions
) and you should consider the risk that you may lose all of your investment, including the
principal amount plus any accrued interest, if the UK
bail-in
power is acted upon or that any remaining outstanding Securities or securities into which the Securities are converted, including our ordinary
shares, may be of little value at the time of conversion and thereafter (as described under
Risks Relating to the SecuritiesThe Securities are the subject of the UK
bail-in
power, which
may result in your Securities being written down to zero or converted into other securities, including unlisted equity securities
).
Specifically, by your acquisition of the Securities, you (which, for these purposes, includes each beneficial owner) will acknowledge, accept,
consent and agree, notwithstanding any other term of the Securities, the Indenture or any other agreements, arrangements or understandings between us and you, to be bound by (a) the effect of the exercise of any UK
bail-in
power by the relevant UK resolution authority (as defined under
Description of the SecuritiesAgreement with Respect to the Exercise of UK
Bail-in
Power
); and (b) the variation of the terms of the Securities or the Indenture, if necessary, to give effect to the exercise of any UK
bail-in
power by the relevant UK resolution authority. No
repayment or payment of Amounts Due (as defined under
Description of the SecuritiesAgreement with Respect to the Exercise of UK
Bail-in
Power
) will become due and payable or be paid
after the exercise of any UK
bail-in
power by the relevant UK resolution authority if and to the extent such amounts have been reduced, converted, cancelled, amended or altered as a result of such exercise.
Moreover, you (which, for these purposes, includes each beneficial owner) will consent to the exercise of the UK
bail-in
power as it may be imposed without any prior notice by the relevant UK resolution
authority of its decision to exercise such power with respect to the Securities. For more information, see
Description of the SecuritiesAgreement with Respect to the Exercise of UK
Bail-in
Power
.
The Securities are the subject of the UK
bail-in
power, which may result in your
Securities being written down to zero or converted into other securities, including unlisted equity securities.
On January 1,
2015, the Banking Act, and other primary and secondary legislative instruments were amended to give effect to the BRRD in the UK. The stated aim of the BRRD in the UK is to provide supervisory authorities, including the relevant UK resolution
authority, with common tools and powers to address banking crises
pre-emptively
in order to safeguard financial stability and minimize taxpayers contributions to bank bail-outs and/or exposure to losses.
As the parent company of a UK bank, we are subject to the Banking Act, which gives wide powers in respect of UK banks and their parent
and other group companies to Her Majestys Treasury (HM Treasury), the Bank of England (BoE), the PRA and the FCA in circumstances where a UK bank has encountered or is likely to encounter financial difficulties.
As a result, the Securities are subject to existing UK
bail-in
powers under the Banking Act and may be
subject to future UK
bail-in
powers under existing or future legislative and regulatory proposals, including measures implementing the BRRD. In particular, the Banking Act was amended to implement the power to
write-down and convert capital instruments (the capital instruments write-down and conversion power) and a
bail-in
tool, both of which may be exercised by the BoE (as a relevant UK
resolution authority) as part of the UK
bail-in
power and may result in the Securities being partially or fully written down or converted to common equity Tier 1 instruments.
The capital instruments write-down and conversion power may be exercised independently of, or in combination with, the exercise of a
resolution tool (other than the
bail-in
tool, which would be used instead of the capital instruments write-down and conversion power), and such power allows resolution authorities to cancel all or a portion of
the principal amount of capital instruments and/or convert such capital instruments into common
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equity Tier 1 instruments when an institution is no longer viable. The BoE or PRA determines the point of
non-viability
for such purposes as the point at
which the relevant institution meets the conditions for resolution or will no longer be viable unless the relevant capital instruments are written down or extraordinary public support is provided and without such support the appropriate authority
determines that the institution would no longer be viable. The BoE will exercise the capital instruments write-down and conversion power in accordance with the priority of claims under normal insolvency proceedings such that common equity Tier 1
items will be written down before additional Tier 1 and Tier 2 instruments, successively, are written down or converted into common equity Tier 1 instruments. In contrast to the
bail-in
tool, the capital
instruments write-down and conversion power does not include a safeguard designed to leave no creditor worse off than in the case of insolvency.
Where the conditions for resolution exist, the BoE may use the
bail-in
tool (individually or in
combination with other resolution tools) to cancel all or a portion of the principal amount of, or interest on, certain unsecured liabilities of a failing financial institution and/or convert certain debt claims into another security, including
ordinary shares of the surviving entity. In addition, the BoE may use the
bail-in
tool to, among other things, replace or substitute the issuer as obligor in respect of debt instruments, modify the terms of
debt instruments (including altering the maturity (if any) and/or the amount of interest payable and/or imposing a temporary suspension on payments) and discontinue the listing and admission to trading of financial instruments. The BoE must apply
the
bail-in
tool in accordance with a specified preference order. In particular, the Banking Act requires resolution authorities to write-down or convert debts in the following order: (i) additional Tier
1 instruments, (ii) Tier 2 instruments, (iii) other subordinated claims that do not qualify as additional Tier 1 or Tier 2 instruments and (iv) eligible senior claims. As a result, additional Tier 1 instruments (including the
Securities) will be written down or converted before subordinated debt that does not qualify as an additional Tier 1 or Tier 2 instrument (and any such subordinated debt would only be written down or converted if the reduction of additional Tier 1
and Tier 2 instruments does not sufficiently reduce the aggregate amount of liabilities that must be written down or converted). Unlike the capital instruments write-down and conversion power, the
bail-in
tool
has a safeguard designed to leave no creditor worse off than in the case of insolvency. However, due to the discretion afforded to the BoE, the claims of some creditors whose claims would rank equally with yours may be excluded from being subject to
the
bail-in
tool. The greater number of such excluded creditors there are, the greater the potential impact of the
bail-in
tool on other creditors who have not been
excluded (which may include you).
Moreover, to the extent the UK
bail-in
power is exercised
pursuant to the Banking Act or otherwise, any securities issued upon conversion of your Securities may not meet the listing requirements of any securities exchange, and our outstanding listed securities may be delisted from the securities exchanges
on which they are listed. Any securities you receive upon conversion of your Securities (whether debt or equity) may not be listed for at least an extended period of time, if at all, or may be on the verge of being delisted by the relevant exchange,
including, for example, our American depositary receipts listed on the New York Stock Exchange, our ordinary shares listed on the London Stock Exchange or otherwise or any securities listed on the GEM of the Irish Stock Exchange. Additionally, there
may be limited, if any, disclosure with respect to the business, operations or financial statements of the issuer of any securities issued upon conversion of your Securities, or the disclosure with respect to any existing issuer may not be current
to reflect changes in the business, operations or financial statements as a result of the exercise of the UK
bail-in
power. Moreover, the exercise of the UK
bail-in
power and/or other actions implementing the UK
bail-in
power may require interests in the Securities to be held or taken, as the case may be, through clearing systems, intermediaries or persons other than DTC.
Furthermore, the trustee may be unwilling to continue serving in its capacity as trustee for the Securities, subject to the terms of the Indenture. As a result, there may not be an active market for any securities you may hold after the exercise of
the UK
bail-in
power.
You should consider the risk that you may lose all of your investment,
including the principal amount plus any accrued interest, if the UK
bail-in
power is acted upon or that any remaining outstanding Securities or securities into which your Securities are converted, including
our ordinary shares, may be of little value at the time of conversion and thereafter. In addition, trading behavior, including prices and volatility, may be affected
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by the threat of
bail-in
and, as a result, your Securities are not necessarily expected to follow the trading behavior associated with other types of
securities. See also
Risks Relating to the SecuritiesOther powers contemplated by the Banking Act may affect your rights under, and the value of your investment in, the Securities
.
Your rights may be limited in respect of the exercise of the UK
bail-in
power by the relevant UK resolution
authority.
There may be limited protections, if any, that will be available to holders of securities subject to the UK
bail-in
power (including the Securities) and to the broader resolution powers of the relevant UK resolution authority. For example, although under the Banking Act the BoEs resolution instrument with respect to
the exercise of the
bail-in
tool must set out the provisions allowing for securities to be transferred, cancelled or modified (or any combination of these), the resolution instrument may make any other
provision that the BoE considers to be appropriate in exercising its specific powers. Such other provisions are expected to be specific and tailored to the circumstances that have led to the exercise of the
bail-in
tool under the Banking Act and there is uncertainty as to the extent to which usual processes or procedures under English law will be available to holders of securities (including the Securities).
Accordingly, you may have limited or circumscribed rights to challenge any decision of the BoE or other relevant UK resolution authority to exercise its UK
bail-in
power.
Other powers contemplated by the Banking Act may affect your rights under, and the value of your investment in, the Securities.
In addition to the capital instruments write-down and conversion power and the
bail-in
tool, the
Banking Act includes powers to (a) transfer all or some of the securities issued by a UK bank or its parent, or all or some of the property, rights and liabilities of a UK bank or its parent (which would include the Securities), to a commercial
purchaser or, in the case of securities, into temporary public ownership (to HM Treasury or an HM Treasury nominee), or, in the case of property, rights or liabilities, to a bridge bank (an entity owned by the BoE); (b) together with another
resolution tool only, transfer impaired or problem assets to one or more publicly owned asset management vehicles to allow them to be managed with a view to maximizing their value through eventual sale or orderly wind-down; (c) override any
default provisions, contracts or other agreements, including provisions that would otherwise allow a party to terminate a contract or accelerate the payment of an obligation; (d) commence certain insolvency procedures in relation to a UK bank;
and (e) override, vary or impose contractual obligations, for reasonable consideration, between a UK bank or its parent and its group undertakings (including undertakings which have ceased to be members of the group), in order to enable any
transferee or successor bank of the UK bank to operate effectively.
The Banking Act also gives power to HM Treasury to make further
amendments to the law for the purpose of enabling it to use these powers effectively, potentially with retrospective effect.
The powers
set out in the Banking Act could affect how credit institutions (and their parent companies) and investment firms are managed as well as, in certain circumstances, the rights of creditors. Accordingly, the taking of any actions contemplated by the
Banking Act may affect your rights under the Securities, and the value of your Securities may be affected by the exercise of any such powers or threat thereof.
The circumstances under which the relevant UK resolution authority would exercise its UK
bail-in
power or other
resolutions tools under the Banking Act or future legislative or regulatory proposals are uncertain, which may affect the value of your Securities.
There remains significant uncertainty regarding the ultimate nature and scope of the resolution powers under the Banking Act (and such
significant uncertainty may exist with respect to any other resolution powers or tools enacted under future legislative or regulatory proposals, including changes proposed to the BRRD in November 2016), as well as the manner in which such powers
would affect us and our securities (including the Securities) if such powers were exercised.
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For example, although the exercise of the capital instruments write-down and conversion
power and certain other resolution tools under the Banking Act are subject to certain
pre-conditions
thereunder, there remains uncertainty regarding the specific factors (including, but not limited to, factors
outside our control or not directly related to us) which the BoE would consider in deciding whether to exercise such powers with respect to us or our securities. In particular, because the Banking Act allows for the BoE to exercise its discretion in
choosing which resolution tool or tools to apply, it will be difficult to predict whether the exercise of the BoEs resolution powers will result in a principal
write-off
or conversion to equity. You may
not be able to refer to publicly available criteria in order to anticipate a potential exercise of any such resolution powers and consequently its potential effect on us or the Securities.
Accordingly, it is not yet possible to assess the full impact of the exercise of the UK
bail-in
power
pursuant to the Banking Act or otherwise on us, and there can be no assurance that the taking of any actions contemplated therein would not adversely affect your rights, the price or value of your investment in the Securities and/or our ability to
satisfy our obligations under the Securities.
Other changes in law may adversely affect your rights as a securityholder.
Changes in law after the date hereof may affect your rights as a securityholder as well as the market value of the Securities. Such changes in
law may include changes in statutory, tax and regulatory regimes during the life of the Securities, which may have an adverse effect on an investment in the Securities. Moreover, any change in law or regulation that would cause the Securities to
cease to qualify in whole or in part as our regulatory capital or to be reclassified, in whole or in part, as a lower quality form of our regulatory capital (other than as a consequence of an Automatic Conversion), could trigger a Capital
Disqualification Event (as defined under
Description of the SecuritiesRedemptionSpecial Event Redemption
). In addition, any change in law or regulation that results in our having to pay Additional Amounts to you could
constitute a Tax Event (as defined under
Description of the SecuritiesRedemptionSpecial Event Redemption
) that also may entitle us to redeem the Securities, in whole (but not in part). See
Risks Relating
to the Securities
We may redeem the Securities for certain tax or regulatory reasons or on any Reset Date
and
Description of the Securities
Redemption
Special Event Redemption
.
In particular, in light of the UKs vote to exit the EU following the referendum on June 23, 2016 (Brexit) and the
results of the UKs general election held on June 8, 2017, there could be significant changes to EU laws applicable in the UK. The full impact of the Brexit decision remains uncertain and a process of negotiation has commenced, which is
likely to take a number of years and will determine the future terms of the UKs relationship with the EU. While Brexit should not in and of itself affect the validity of the Banking Act (through which the BRRD is implemented), it is possible
that subsequent changes in law affecting your rights could take place. Moreover, CRD IV, a portion of which currently has direct effect in the UK and forms the basis for the structuring of the Securities, may cease to apply in the UK in its current
form, which may result in some changes to UK prudential requirements. This may affect the regulatory capital treatment of the Securities, which could trigger a Capital Disqualification Event, and may reduce the liquidity of the Securities while
ongoing uncertainty exists. In addition, many of the terms of the Securities are determined or calculated by reference to CRD IV, including the
end-point
CET1 Ratio, which would continue to be the case even if
CRD IV ceased to apply to us. This may have an adverse effect on you if, for example, a Capital Adequacy Trigger Event occurred under the terms of the Securities, even though no such event would have occurred had the
end-point
CET1 Ratio been determined by reference to the new capital rules applicable to us.
Such
legislative and regulatory uncertainty could also affect your ability to accurately value the Securities, as well as their liquidity, and, therefore, affect the trading price of the Securities given the extent and impact on the Securities that one
or more regulatory or legislative changes, including those described under
Risks Relating to the SecuritiesThe circumstances under which the relevant UK resolution authority would exercise its UK
bail-in
power or other resolutions tools under the Banking Act or future legislative or regulatory proposals are uncertain, which may affect the value of your Securities
, could have on the
Securities.
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We may issue securities senior to, or
pari passu
with, the Securities or
the Conversion Shares.
There is no restriction on the amount of securities that we may issue that rank senior to, or
pari passu
with, the Securities or the Conversion Shares. In particular, the FSB final standards for TLAC requirements for
G-SIBs
will apply to us once implemented in the UK (that are due to be
implemented from January 2019 onwards). We expect to issue between $60 billion and $80 billion in aggregate principal amount of senior debt securities over a period of time expected to be in excess of three years (starting from 2016). We
have issued approximately US$44.1 billion as of March 16, 2018, in order to meet these TLAC requirements. See pages 87 through 93 in the 2017 Form
20-F.
Furthermore, the terms of the Indenture permit us (and our subsidiaries) to incur additional debt and the Securities will be effectively
subordinated to any indebtedness or other liabilities of our subsidiaries (see
Risks Relating to the Securities
Our holding company structure may mean that our rights to participate in assets of any of our subsidiaries
upon its liquidation may be subject to prior claims of some of its creditors, including when we have loaned or otherwise advanced the proceeds received from the issuance of the Securities to such subsidiary
).
In the event of our
winding-up
prior to a Capital Adequacy Trigger Event, the Securities will be
subordinated in right of payment to the claims of Senior Creditors (including those creditors holding any securities we may issue that rank senior to the Securities, such as any securities issued to meet TLAC requirements and any of our capital
instruments that qualify as Tier 2 instruments under the Relevant Rules). See
Description of the SecuritiesSubordination.
After a Capital Adequacy Trigger Event, the Conversion Shares will be subordinated to the claims
of our depositors and all of our other creditors, other than claims which by their terms are, or are expressed to be, subordinated to, or
pari passu
with, our ordinary shares (including those creditors holding any securities we may issue that
rank senior to our ordinary shares).
As a result, in the event of our
winding-up,
you may recover
from the value of our assets to satisfy your claims only after our creditors that rank senior to the Securities or the Conversion Shares, as applicable, have been paid in full. In addition, the claims of
pari passu
creditors may reduce the
amount recoverable by you. Therefore, you may lose all or some of your investment in the Securities in the event of our
winding-up.
Our holding company structure may mean that our rights to participate in assets of any of our subsidiaries upon its liquidation may be subject to prior
claims of some of its creditors, including when we have loaned or otherwise advanced the proceeds received from the issuance of the Securities to such subsidiary.
The Securities are our obligations exclusively and are not guaranteed by any person, including any of our subsidiaries. We are a
non-operating
holding company and, as such, our principal source of income is derived from our operating subsidiaries that hold the principal assets of the HSBC Group. As a separate legal entity, we rely on, among
other things, remittance of our subsidiaries loan interest payments and dividends in order to be able to meet our obligations to you as they fall due. The ability of our subsidiaries and affiliates to pay dividends could be restricted by
changes in regulation, contractual restrictions, exchange controls and other requirements, which may restrict our ability to pay any amounts due under the Securities.
In addition, because we are a holding company, our rights to participate in the assets of any subsidiary if it is liquidated will be subject
to the prior claims of its creditors and any preference shareholders, except to the extent that we may be a creditor with recognized claims ranking ahead of or
pari passu
with such prior claims against the subsidiary.
We also have absolute discretion as to how we make our investments in, or advance funds to, our subsidiaries, including the proceeds of
issuances of debt securities such as the Securities, and as to how we may restructure existing investments and funding in the future. The ranking of our claims in respect of such investments and funding in the event of the liquidation of a
subsidiary, and their treatment in resolution, will
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depend in part on their form and structure and the types of claim that they give rise to. The purposes of such investments and funding, and any such restructuring, may include, among other
things, the provision of different amounts or types of capital or funding to particular subsidiaries, including for the purposes of meeting regulatory requirements, such as the implementation of the EBAs minimum requirement for own funds and
eligible liabilities (or any equivalent requirements imposed by the PRA), or the FSBs minimum TLAC requirements, in respect of such subsidiaries, which may require funding to be made on a subordinated basis. See pages 87 through 93 in the 2017
Form
20-F.
In addition, the terms of some loans or investments in capital instruments issued by
our subsidiaries may contain contractual mechanisms that, upon the occurrence of a trigger related to the prudential or financial condition of such subsidiary, would result in a write-down of the claim or a change in the ranking and type of claim
that we have against such subsidiary. Such loans to and investments in our subsidiaries may also be subject to the exercise of the UK
bail-in
power. See
Risks Relating to the SecuritiesThe
Securities are the subject of the UK
bail-in
power, which may result in your Securities being written down to zero or converted into other securities, including unlisted equity securities.
Any
changes in the legal or regulatory form or ranking of a loan or investment could also affect its treatment in resolution.
If any of our
subsidiaries were wound up, liquidated or dissolved, (i) the securityholders would have no right to proceed against the assets of such subsidiary and (ii) the liquidator of such subsidiary would first apply the assets of such subsidiary to
settle the claims of such subsidiarys creditors and/or preference shareholders (including holders of such subsidiarys senior debt and Tier 2 and additional Tier 1 capital instruments) before we would be entitled to receive any
distributions.
As a result of your receiving Conversion Shares upon a Capital Adequacy Trigger Event, you are particularly exposed to changes in
the market price of our ordinary shares.
Many investors in convertible or exchangeable securities seek to hedge their exposure in
the underlying equity securities at the time of acquisition of the convertible or exchangeable securities, often through short selling of the underlying equity securities or through similar transactions. Prospective investors in the Securities may
look to sell our ordinary shares in anticipation of taking a position in, or during the term of, the Securities. This could drive down the price of our ordinary shares. Since the Securities will mandatorily convert into a fixed number of Conversion
Shares upon a Capital Adequacy Trigger Event, the price of the Conversion Shares may be more volatile if we are trending toward a Capital Adequacy Trigger Event.
You may be subject to disclosure obligations and/or may need approval from our regulator under certain circumstances.
As you may receive Conversion Shares if a Capital Adequacy Trigger Event occurs, an investment in the Securities may result in your having to
comply with certain disclosure and/or regulatory approval requirements pursuant to applicable laws and regulations following an Automatic Conversion. For example, pursuant to Chapter 5 of the Disclosure Rules and Transparency Rules Sourcebook of the
FCA Handbook, we (and the FCA) must be notified by a person when the percentage of voting rights in us controlled by that person (together with its concert parties), by virtue of direct or indirect holdings of shares aggregated with direct or
indirect holdings of certain financial instruments, reaches or crosses 3% and every percentage point thereafter.
Furthermore, as
Conversion Shares represent voting securities of a parent undertaking of a number of regulated group entities, under the laws of the UK, the United States and other jurisdictions, ownership of the Securities (or the Conversion Shares) above certain
levels may require you to obtain regulatory approval or subject you to additional regulation.
Non-compliance
with such disclosure and/or approval requirements may lead to the incurrence of
substantial fines or other criminal and/or civil penalties and/or suspension of voting rights associated with the
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Conversion Shares. Accordingly, you should consult your legal advisers as to the terms of the Securities, in respect of your existing shareholding and the level of holding you would have if you
receive Conversion Shares following a Capital Adequacy Trigger Event.
Uncertainty relating to the LIBOR calculation process may adversely impact
the value of the Securities.
Regulators and law enforcement agencies in the UK and elsewhere are conducting civil and criminal
investigations into the calculation of daily LIBOR by banks that contributed to the British Bankers Association (the BBA) when it was the body which exclusively set the relevant LIBOR benchmark rates. A number of BBA member banks
have entered into settlements with their regulators and law enforcement agencies with respect to alleged manipulation of LIBOR. In 2014, ICE Benchmark Rate Administration Ltd. (ICE Administration) was appointed as the independent LIBOR
administrator. Actions by ICE Administration, regulators or law enforcement agencies may result in changes to the manner in which LIBOR is determined. Some of these reforms are already effective, while others are still to be implemented or
formulated. For example, on July 27, 2017, the FCA announced that it intends to stop persuading or compelling banks to submit rates for the calculation of LIBOR to the administrator of LIBOR after 2021. The announcement indicates that the
continuation of LIBOR on the current basis cannot and will not be guaranteed after 2021, and it appears highly likely that LIBOR will be discontinued or modified by 2021. Moreover, any of the proposals for reform or the general increased regulatory
scrutiny of LIBOR could increase the costs and risks of administering or otherwise participating in the setting of a LIBOR rate and complying with any such regulations or requirements. As a result, it is not possible to predict whether and to what
extent banks will continue to provide LIBOR submissions to the administrator of LIBOR to allow for the calculation of LIBOR in its current form, whether LIBOR rates will cease to be published or supported before or after 2021, or whether any
additional reforms to LIBOR may be enacted in the UK or elsewhere. At this time, no consensus exists as to what rate or rates may become accepted alternatives to LIBOR and it is impossible to predict the effect of any such alternatives on the value
of LIBOR-based securities, including the Securities.
If LIBOR ceases to be calculated or administered for publication, the
Mid-Market
Swap Rate Quotation will be determined using the alternative methods described under
Description of SecuritiesInterestGeneral
. In particular, an independent financial
adviser appointed by us, or we (if we are unable to appoint one), will have the discretion to determine whether another rate has replaced LIBOR in customary market usage for setting rates comparable to the
Mid-Market
Swap Rate (the Alternative Base Rate), which will be used for purposes of determining the
Mid-Market
Swap Rate going forward. Moreover, we may
make adjustments to the Alternative Base Rate as may, in our determination, be necessary to take account of any adjustment factor to make such rates comparable to rates quoted on the basis of LIBOR. The independent financial advisers and our
economic interests could be adverse to your interests as an investor in the Securities, and neither the independent financial adviser nor we will have any obligation to consider your interests as a securityholder in taking any action that might
affect the value of the Securities. Additionally, the use of the Alternative Base Rate may result in interest payments that are lower than, or that do not otherwise correlate over time with, the payments that would have been made on the Securities
if LIBOR was available in its current form. Moreover, if LIBOR ceases to be calculated or administered and no Alternative Base Rate is identified, the interest rate on the Securities will accrue at the same rate as the immediately preceding interest
period if we are unable to obtain the
Mid-Market
Swap Rate Quotation from Reference Banks, effectively converting the Securities into fixed rate instruments.
The Securities are not bank deposits.
An investment in the Securities is not equivalent to an investment in a bank deposit and carries risks that are very different from the risk
profile of such a deposit.
The issue price, interest rate and yield to maturity of the Securities are expected to reflect the additional
risks borne by investors therein when compared to those of depositors. For example, the Securities do not benefit from any protection provided pursuant to Directive 2014/49/EU of the European Parliament and of the Council
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on deposit guarantee schemes or any national implementing measures implementing such directive in any jurisdiction (such as the UK Financial Services Compensation Scheme). Therefore, if we become
insolvent or default on our obligations, investors could lose their entire investment. Additionally, given that the Securities are not bank deposits, they may be subject to the capital instruments write-down and conversion power and would be subject
to the
bail-in
tool before it is applied to bank deposits (to the extent that such deposits are subject to the
bail-in
tool at all). See
Risks Relating to
the SecuritiesThe Securities are the subject of the UK
bail-in
power, which may result in your Securities being written down to zero or converted into other securities, including unlisted equity
securities.
The Securities constitute a new issue of securities by us and we cannot guarantee that an active public market for the
Securities will develop or be sustained.
The Securities will constitute a new issue of securities by us. Prior to our present
issuance of Securities, there will have been no public market for the Securities. Even though the Securities are expected to have greater liquidity than a bank deposit given that bank deposits are generally not transferable, there can be no
assurance that an active public market for the Securities will develop . See
Risks Relating to the SecuritiesThe Securities are not bank deposits.
Although application will be made to the Irish Stock Exchange for the
Securities to be admitted to the Official List and to trading on the GEM (the exchange regulated market of the Irish Stock Exchange), there can be no assurance that an active public market for the Securities will develop and, if such a market were
to develop, the underwriters are under no obligation to maintain such a market. The liquidity and the market prices for the Securities can be expected to vary with changes in market and economic conditions and our financial condition and prospects
and other factors that generally influence the market prices of securities.
Our credit ratings may not reflect all risks of an investment in the
Securities, and changes to any credit rating assigned to us or the Securities may affect the market value of the Securities.
Our
credit rating or those assigned to the Securities may not reflect the potential impact of all risks related to structure and other factors on any trading market for, or market value of, the Securities. A credit rating is not a recommendation to buy,
sell or hold securities and may be revised or withdrawn by the rating agency at any time in its sole discretion.
Any rating assigned to
us or the Securities may be withdrawn entirely by a credit rating agency, may be suspended or may be lowered, if, in that credit rating agencys judgment, circumstances relating to the basis of the rating so warrant. Ratings may be impacted by
a number of factors that can change over time, including the credit rating agencys assessment of: our strategy and managements capability; our financial condition, including in respect of capital, funding and liquidity; competitive,
economic, legal and regulatory conditions in our key markets, including those markets where we have large exposures or on which our operating results, including revenues, are substantially dependent; the level of political support for the industries
in which we operate; and legal and regulatory frameworks affecting our legal structure, business activities and the rights of our creditors. Moreover, the rating agencies that currently, or may in the future, publish a rating for us or the
Securities may change the methodologies that they use for analyzing securities with features similar to the Securities.
In September
2017, Moodys downgraded and maintained its negative rating outlook on our long-term senior unsecured debt. This reflects Moodys assessment of our financial strength based on deteriorating operating conditions in certain markets,
including the UK and Hong Kong, where a significant portion of our business and assets are located and from which we generate a substantial portion of our revenue and profit. The negative outlook reflects the increased likelihood that losses
following any failure of our Hong Kong subsidiary would be passed to us following the implementation of Hong Kongs new banking resolution framework. As a result, our long-term ratings could be downgraded if the financial strength of our main
operating entities weakens further or if the risk of loss to our creditors increases (including, for example, an increase in our tangible banking
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assets (as defined by Moodys) or a material reduction in the amount of our loss absorbing liabilities). Any such downgrade would negatively affect any rating assigned to the Securities.
Real or expected downgrades, suspensions or withdrawals of credit ratings assigned to us or the Securities could cause the liquidity or
trading prices of the Securities to decline significantly. Additionally, any uncertainty about the extent of any anticipated changes to the credit ratings assigned to us or the Securities may adversely affect the market value of the Securities.
The Securities may be assigned a credit rating below investment grade in the future, in which case the Securities will be subject to the risks
associated with
non-investment
grade securities.
The Securities are expected to be
assigned a credit rating slightly above investment grade. However, rating agencies that are expected to assign ratings to the Securities may adopt methodology changes that may result in lowering the credit rating of the Securities to below
investment grade. Moreover, after the issue date, we may seek a credit rating on the Securities from additional rating agencies, any of which may assign a credit rating to the Securities below investment grade, including due to methodology changes
between the issue date and the date the credit rating is assigned. See
Our credit ratings may not reflect all risks of an investment in the Securities, and changes to any credit rating assigned to us or the Securities may affect the market
value of the Securities.
If the Securities are not considered to be investment grade securities, they will be subject to a
higher risk of price volatility than more highly rated securities. Furthermore, increases in leverage or deteriorating outlooks for us or volatile markets could lead to a significant deterioration in market prices of below-investment grade rated
securities.
You may not be entitled to receive US dollars in a
winding-up.
If you are entitled to any recovery with respect to the Securities in any
winding-up,
you might not be
entitled in those proceedings to a recovery in US dollars and might be entitled only to a recovery in pounds sterling or any other lawful currency of the UK. In addition, under current English law, our liability to you would have to be converted
into pounds sterling or any other lawful currency of the UK at a date close to the commencement of proceedings against us and you would be exposed to currency fluctuations between that date and the date you receive proceeds pursuant to such
proceedings, if any.
You will be responsible for any taxes following an Automatic Conversion
Neither we nor any member of the HSBC Group will be liable for any taxes or duties (including, without limitation, any capital, stamp, issue
and registration or transfer taxes or duties) arising on conversion or that may arise or be paid as a consequence of the issue and delivery of Conversion Shares following an Automatic Conversion. You must pay any taxes or duties (including, without
limitation, any capital, stamp, issue and registration and/or transfer taxes or duties) arising on conversion in connection with the issue and delivery of Conversion Shares to the Conversion Shares Depository on your behalf and you must pay all, if
any, such taxes or duties arising by reference to any disposal or deemed disposal of your Securities or interest therein (except for any taxes or duties arising on delivery or transfer of Conversion Shares to a purchaser in any Conversion Shares
Offer).
You may be subject to US tax upon adjustments (or failure to make adjustments) to the Conversion Price and the Conversion Shares Offer
Price even though you do not receive a corresponding cash distribution.
The Conversion Price and the Conversion Shares Offer Price
are subject to adjustment in certain circumstances, as described under
Description of the SecuritiesAnti-Dilution
. If, as a result of adjustments (or failure to make adjustments), your proportionate interest in our assets or
earnings were deemed to be increased for US federal income tax purposes, you may be treated as having received a taxable distribution for these purposes, without the receipt of any cash or property. See
TaxationMaterial US Federal
Income Tax Considerations
for a further discussion of these US federal tax implications.
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Our
gross-up
obligation under the Securities is limited to
payments of interest.
Our obligation to pay Additional Amounts in respect of any withholding or deduction in respect of UK taxes
under the terms of the Securities applies only to payments of interest in respect of the Securities and not to payments of principal. Accordingly, we would not be required to pay any Additional Amounts under the terms of the Securities to the extent
any such withholding or deduction applied to payments of principal. In such circumstances, you may receive less than the full amount of principal due in respect of the Securities, and the market value of the Securities may be adversely affected. See
Description of the SecuritiesAdditional Amounts
.
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HSBC HOLDINGS PLC
HSBC is one of the largest banking and financial services organizations in the world. As of December 31, 2017, we had total assets of
US$2,522 billion and total shareholders equity of US$190 billion. For the year ended December 31, 2017, our operating profit was US$14,792 million on total operating income of US$63,776 million. We are a strongly
capitalized banking group with a CRD IV common equity Tier 1 ratio
(end-point
basis) of 14.5% as of December 31, 2017.
Headquartered in London, HSBC operates through long-established businesses and serves customers worldwide from around 3,900 offices in 67
countries and territories in Europe, Asia, North and Latin America, and the Middle East and North Africa. Within these regions, a comprehensive range of banking and related financial services is offered to personal, commercial, corporate,
institutional, investment and private banking clients. Our products and services are delivered to clients through four global businesses, Retail Banking and Wealth Management, Commercial Banking, Global Banking and Markets and Global Private
Banking.
S-47
DESCRIPTION OF THE SECURITIES
The following summary description of certain material terms and provisions of the Securities supplements the description of certain terms
and provisions of the contingent convertible securities of any series set forth in the accompanying prospectus under the heading Description of Contingent Convertible Securities. The terms described here, together with the relevant terms
of contingent convertible securities contained in the accompanying prospectus, constitute a description of the material terms of the Securities. In cases of inconsistency between the terms described here and the relevant terms of the prospectus, the
terms presented here will apply and replace those described in the prospectus.
The Securities will constitute a series of contingent
convertible securities issued under the indenture dated as of August 1, 2014 (as amended or supplemented from time to time) among us, The Bank of New York Mellon, London Branch, as trustee, and HSBC Bank USA, National Association, as paying
agent, the form of which is filed as an exhibit to our registration statement on Form
F-3
(the Registration Statement). The indenture will be supplemented and amended by a sixth supplemental
indenture, with respect to the 2023 Securities, and a seventh supplemental indenture with respect to the 2028 Securities, both of which are expected to be entered into on March 23, 2018, among us, the trustee and the paying agent (the indenture,
together with the sixth supplemental indenture or the seventh supplemental indenture, as applicable, the Indenture), the form of which will be filed as an exhibit to a report on Form
6-K
on or
about March 23, 2018, which will be incorporated by reference in the Registration Statement.
If you purchase the Securities, your rights
will be determined by the Securities, the Indenture and the Trust Indenture Act of 1939, as amended (the Trust Indenture Act), unless your Securities are converted to Conversion Shares after a Capital Adequacy Trigger Event as described
under
Automatic Conversion Upon Capital Adequacy Trigger Event
, in which case your rights will be determined in accordance with the terms of our ordinary shares as described in the accompanying prospectus under
Description of Ordinary Shares
. You can read the Indenture and the form of Securities at the location listed under
Where You Can Find More Information About Us
.
The Indenture and the Securities will be governed by, and construed in accordance with, the laws of the State of New York, except that the
subordination provisions of the Indenture and of the Securities (see
Subordination
) will be governed by, and construed in accordance with, the laws of England and Wales.
The 2023 Securities and the 2028 Securities will be issued in an aggregate principal amount of $2,250,000,000 and $1,750,000,000, respectively
(or up to $2,475,000,000 and $1,925,000,000, respectively, if the underwriters over-allotment option with respect to such series is exercised in full), and will have no fixed maturity or fixed redemption date. The Securities will be issued
only in registered form in minimum denominations of $200,000 and in integral multiples of $1,000 in excess thereof.
Interest
General
Interest on the 2023
Securities will be a rate per annum equal to (i) 6.250%, from (and including) the issue date to (but excluding) March 23, 2023 and (ii) the sum of 3.453% and the applicable Mid-Market Swap Rate on the relevant Reset Determination Date, from (and
including) each 2023 Securities Reset Date to (but excluding) the immediately following 2023 Securities Reset Date. The 2023 Securities Reset Dates are March 23, 2023 and each fifth anniversary date thereafter.
Interest on the 2028 Securities will be a rate per annum equal to (i) 6.500%, from (and including) the issue date to (but excluding) March 23,
2028 and (ii) the sum of 3.606% and the applicable Mid-Market Swap Rate on the relevant Reset Determination Date, from (and including) each 2028 Securities Reset Date to (but excluding) the immediately following 2028 Securities Reset Date. The
2028 Securities Reset Dates are March 23, 2028 and each fifth anniversary date thereafter.
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A Reset Date means either a 2023 Securities Reset Date or a 2028 Securities
Reset Date, as applicable, and a Reset Determination Date is the second business day immediately preceding a Reset Date. Each period from (and including) a Reset Date to (but excluding) the following Reset Date will be a Reset
Period.
A
Mid-Market
Swap Rate is the
Mid-Market
Swap Rate Quotation that appears on Bloomberg page ISDA 01 (or such other page as may replace such page on Bloomberg or such other information service, in each case, as may be nominated
by the person providing or sponsoring the information appearing on such page for purposes of displaying comparable rates) (the relevant screen page) as of approximately 11:00 a.m. (New York time) on the relevant Reset Determination Date,
all as determined by the calculation agent;
provided
,
however
, that
if no such rate appears on the relevant screen page for a five-year term, then the
Mid-Market
Swap Rate will be
determined through the use of straight-line interpolation by reference to two rates, one of which will be determined in accordance with the above provisions, but as if the relevant Reset Period were the period of time for which rates are available
next shorter than the length of the actual Reset Period and the other of which will be determined in accordance with the above provisions, but as if the relevant Reset Period were the period of time for which rates are available next longer than the
length of the actual Reset Period;
provided further
that if on any Reset Determination Date the relevant screen page is not available or the
Mid-Market
Swap Rate does not appear on the relevant screen
page, the calculation agent will request the principal office in New York of four major banks in the swap, money, securities or other market most closely connected with the relevant
Mid-Market
Swap Rate (as
selected by us on the advice of an investment bank of international repute) (the Reference Banks) to provide it with its
Mid-Market
Swap Rate Quotation as of approximately 11:00 a.m. (New York
time) on the relevant Reset Determination Date. If two or more of the Reference Banks provide the calculation agent with
Mid-Market
Swap Rate Quotations, the interest rate for the relevant Reset Period will be
the sum of 3.453%, with respect to the 2023 Securities, or 3.606%, with respect to the 2028 Securities, and the arithmetic mean (rounded, if necessary, to the nearest 0.001% (0.0005% being rounded upwards)) of the relevant
Mid-Market
Swap Rate Quotations, as determined by the calculation agent. If only one or none of the Reference Banks provides the calculation agent with a
Mid-Market
Swap Rate
Quotation, the interest will be determined to be the rate of interest as of the last preceding Reset Date or, in the case of the initial Reset Determination Date, 6.250%, with respect to the 2023 Securities, or 6.500% with respect to the 2028
Securities.
A
Mid-Market
Swap Rate Quotation is a quotation (expressed as a
percentage rate per annum) for the mean of the bid and offered rates for the fixed leg payable semi-annually (calculated on the basis of twelve
30-day
months or, in the case of an incomplete month, the actual
number of days elapsed, in each case assuming a
360-day
year) of a
fixed-for-floating
interest rate swap transaction in US
dollars which transaction (i) has a five-year term commencing on the relevant Reset Date, (ii) is in an amount that is representative for a single transaction in the US dollar swap rate market at 11:00 a.m. (New York time) with an
acknowledged dealer of good credit in the swap market and (iii) has a floating leg based on
six-month
LIBOR (calculated on the basis of twelve
30-day
months or, in
the case of an incomplete month, the actual number of days elapsed, in each case assuming a
360-day
year);
provided
that if (a) we determine that LIBOR has ceased to be calculated or administered
and (b) the Independent Financial Adviser, or, if we are unable to appoint the Independent Financial Adviser, we (acting in good faith and a commercially reasonable manner), determine that another rate has replaced LIBOR in customary market
usage for setting rates comparable to the
Mid-Market
Swap Rate (the Alternative Base Rate), then the
Mid-Market
Swap Rate Quotation will be the quotation of
the mean of bid and offered rates determined as provided above but as if the reference to LIBOR was a reference to the Alternative Base Rate and with such adjustments (if any) as may in our determination (after consultation with the Independent
Financial Adviser if appointed as provided for above) be necessary to take account of any adjustment factor to make such rates comparable to rates quoted on the basis of LIBOR;
provided
further
that if the determination of the
Alternative Base Rate occurs less than five business days prior to the relevant Reset Determination Date, the rate of interest will be as of the last preceding Reset Date or, in the case of the initial Reset Determination Date, 6.250%, with respect
to the 2023 Securities, or 6.500% with respect to the 2028 Securities.
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We will promptly give notice of the determination of the Alternative Base Rate and any
adjustment factors to the trustee, the paying agent, the calculation agent and the securityholders.
By its acquisition of the Securities,
each securityholder (which, for these purposes, includes each beneficial owner) also (i) will waive any and all claims, in law and/or in equity, against the trustee, the paying agent and the calculation agent for, agree not to initiate a suit
against the trustee, the paying agent and the calculation agent in respect of, and agree that neither the trustee, the paying agent nor the calculation agent will be liable for, the determination of or the failure to determine any Alternative Base
Rate (including any adjustments thereto) and any losses suffered in connection therewith, and (ii) will agree that neither the trustee, the paying agent nor the calculation agent will have any obligation to determine any Alternative Base Rate
(including any adjustments thereto), including in the event of any failure by us to determine any Alternative Base Rate.
All
determinations and any calculations made by the calculation agent for the purposes of calculating the applicable
Mid-Market
Swap Rate will be conclusive and binding on the securityholders, us, the trustee and
the paying agent, absent manifest error. The calculation agent will not be responsible to us, the securityholders or any third party for any failure of the Reference Banks to provide quotations as requested of them or as a result of the calculation
agent having acted on any quotation or other information given by any Reference Bank which subsequently may be found to be incorrect or inaccurate in any way.
Subject to cancellation or deemed cancellation as described under
Interest
Interest Cancellation
,
interest on the 2023 Securities, if any, will be payable in arrear on March 23 and September 23 of each year, beginning on September 23, 2018, and interest on the 2028 Securities, if any, will be payable in arrear on March 23 and September 23
of each year, beginning on September 23, 2018. The regular record dates for the Securities will be the 15
th
calendar day preceding each interest payment date, whether or not a business day.
Interest on the Securities will be calculated on the basis of twelve
30-day
months or, in the case of an incomplete month, the actual number of days elapsed, in each case assuming a
360-day
year.
If any scheduled interest payment date is not a business day, we will pay interest on the
next succeeding business day, but interest on that payment will not accrue during the period from and after the scheduled interest payment date. If the date of redemption or repayment is not a business day, we will pay interest and principal on the
next succeeding business day, but interest on that payment will not accrue during the period from and after the date of redemption or repayment.
If any Reset Date is not a business day, the Reset Date will occur on the next succeeding business day (the Adjusted Reset Date).
For the avoidance of doubt, if the Reset Date is not a business day and accordingly the Reset Date occurs on the Adjusted Reset Date, the equal semi-annual payment of interest (if any) on the next interest payment date will reflect interest for the
entire interest period (including any portion of such interest period occurring between the originally scheduled Reset Date and the Adjusted Reset Date) at the interest rate determined based on the Adjusted Reset Date, and not at the interest rate
that applied to the immediately preceding semi-annual interest period. In addition and for the avoidance of doubt, in connection with any optional redemption of the Securities as described under
RedemptionOptional
Redemption
, if the Reset Date is not a business day, as described above, we will pay interest (if any) together with the principal on the Adjusted Reset Date, but interest on that payment will not accrue during the period from and after
the last interest payment date.
Agreement with Respect to the Alternative Base Rate
By its acquisition of the Securities, each securityholder (which, for these purposes, includes each beneficial owner) will acknowledge, accept,
consent and agree to be bound by the Independent Financial Advisers or our determination of the Alternative Base Rate and any adjustment factors applied thereto, including as may occur without any prior notice from us and without the need for
us to obtain any further consent from such securityholder.
S-52
Interest Cancellation
Interest on the Securities will be due and payable on an interest payment date only to the extent it is not cancelled or deemed to have been
cancelled (in each case, in whole or in part) in accordance with the provisions set forth below. Any interest cancelled or deemed to have been cancelled (in each case, in whole or in part) will not be due and will not accumulate or be payable at any
time thereafter, and the securityholders will have no rights thereto or to receive any additional interest or compensation as a result of such cancellation or deemed cancellation. For the avoidance of doubt, any interest payments that have been
cancelled or deemed to have been cancelled will not be payable if the Securities are redeemed as described under
Redemption
.
Discretionary Interest Payments
Interest
on the Securities will be due and payable at our sole discretion, and we will have sole and absolute discretion at all times and for any reason to cancel (in whole or in part) any interest payment that would otherwise be payable on any interest
payment date (the Discretionary Interest Payment Right). If we do not make an interest payment in respect of the Securities on the relevant interest payment date (or if we elect to make a payment of a portion, but not all, of such
interest payment), such
non-payment
will evidence the exercise of our discretion to cancel such interest payment (or the portion of such interest payment not paid), and accordingly such interest payment (or
the portion thereof not paid) will not be due and payable. For the avoidance of doubt, if we provide notice to cancel a portion, but not all, of an interest payment in respect of the Securities, and subsequently we do not make a payment of the
remaining portion of such interest payment on the relevant interest payment date, such
non-payment
will evidence the exercise of our discretion to cancel such remaining portion of such interest payment, and
accordingly such remaining portion of the interest payment will also not be due and payable.
The Securities will rank senior to our
ordinary shares, as described under
Subordination
. It is the current intention of our board of directors to take into account the relative ranking in our capital structure of our ordinary shares and outstanding additional
Tier 1 securities whenever exercising its discretion to declare dividends on the former or to cancel interest on the latter. However, our board of directors may depart from this policy at any time in its sole discretion.
Restrictions on Interest Payments
Without prejudice to the Discretionary Interest Payment Right or the prohibition contained in Article 141(2) of CRD (as defined under
Description of the SecuritiesDefinitions
) (and any implementation of such provision in the UK or, as the case may be, any succeeding provision amending or replacing such Article or any such implementing provision) on the
making of payments on the Securities before the Maximum Distributable Amount has been calculated, subject to the extent permitted in the following paragraph in respect of partial interest payments in respect of the Securities, we will not make an
interest payment on any interest payment date (and such interest payment will therefore be deemed to have been cancelled and thus will not be due and payable on such interest payment date) if:
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(a)
|
the amount of Relevant Distributions exceeds the amount of Distributable Items as of such interest payment date;
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(b)
|
the aggregate of (x) the interest amount payable in respect of the Securities and (y) the amounts of any distributions of the kind referred to in Article 141(2) of CRD (and any implementation of such provision
in the UK or, as the case may be, any succeeding provision amending or replacing such Article or any such implementing provision) exceeds the Maximum Distributable Amount (if any) applicable to us as of such interest payment date;
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(c)
|
the Solvency Condition (as described under
Subordination
) is not satisfied in respect of such interest payment; or
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S-53
|
(d)
|
the Relevant Regulator orders us to cancel (in whole or in part) the interest otherwise payable on such interest payment date.
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We may, in our sole discretion, elect to make a partial interest payment on the Securities on any interest payment date, only to the extent
that such partial interest payment may be made without breaching the restriction in the preceding paragraph. For the avoidance of doubt, the portion of interest not paid on the relevant interest payment date will be deemed to have been cancelled and
thus will not be due and payable on such interest payment date.
Agreement to Interest Cancellation
By its acquisition of the Securities, each securityholder (which, for these purposes, includes each beneficial owner) will acknowledge and
agree that:
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(a)
|
interest is payable solely at our discretion and no amount of interest will become due and payable in respect of the relevant interest period to the extent that it has been (x) cancelled (in whole or in part) by us
at our sole discretion and/or (y) deemed to have been cancelled (in whole or in part), including as a result of our Distributable Items or the Maximum Distributable Amount being exceeded, failing to satisfy the Solvency Condition or an order
from the Relevant Regulator; and
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(b)
|
a cancellation or deemed cancellation of interest (in each case, in whole or in part) in accordance with the terms of the Indenture and the Securities will not constitute a default in payment or otherwise under the
terms of the Indenture or the Securities.
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Notice of Interest Cancellation
If practicable, we will provide notice of any cancellation or deemed cancellation of interest (in each case, in whole or in part) to the
securityholders through the Depository Trust Company (DTC) (or, if the Securities are held in definitive form, to the securityholders at their addresses shown on the register for the Securities) and to the trustee and the paying agent
directly on or prior to the relevant interest payment date. If practicable, we will endeavor to do so at least five business days prior to the relevant interest payment date. Failure to provide such notice will have no impact on the effectiveness
of, or otherwise invalidate, any such cancellation or deemed cancellation of interest (and accordingly, such interest will not be due and payable), or give the securityholders any rights as a result of such failure.
Redemption
The Securities will not be
redeemable at the option of the securityholders at any time.
The Securities will not be subject to any sinking fund or mandatory
redemption.
Optional Redemption
The 2023 Securities and the 2028 Securities may be redeemed in whole (but not in part) at our option in our sole discretion on any 2023
Securities Reset Date or 2028 Securities Reset Date, respectively, at a redemption price equal to 100% of the principal amount plus any accrued and unpaid interest to (but excluding) the date of redemption (which interest will exclude any interest
that is cancelled or deemed to have been cancelled as described under
Interest
Interest Cancellation
). Any redemption of the Securities is subject to the restrictions described under
Redemption
Redemption Conditions
.
Special Event Redemption
We may redeem the Securities in whole (but not in part) in our sole discretion upon the occurrence of a Tax Event or a Capital Disqualification
Event (each, a Special Event), at a redemption price equal to 100% of their
S-54
principal amount plus any accrued but unpaid interest to (but excluding) the date of redemption (which interest will exclude any interest that is cancelled or deemed to have been cancelled as
described under
Interest
Interest Cancellation
). Any redemption upon the occurrence of a Special Event will be subject to the conditions described under
Redemption
Redemption
Conditions
.
A Tax Event will be deemed to have occurred with respect to the Securities if at any time we determine
that as a result of a change in, or amendment to, the laws of a Taxing Jurisdiction (as defined below under
Additional Amounts
), including any treaty to which the relevant Taxing Jurisdiction is a party, or a change
in an official application or interpretation of those laws on or after the issue date, including a decision of any court or tribunal that becomes effective on or after the issue date:
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(a)
|
on a subsequent date for the payment of interest on the Securities we would be required to pay any Additional Amounts (as described under
Additional Amounts
);
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(b)
|
if we were to seek to redeem the Securities on a subsequent date (for which purpose no consideration will be given as to whether or not we would otherwise be entitled to redeem the Securities), we would be required to
pay any Additional Amounts (as described under
Additional Amounts
) (notwithstanding our having made such endeavors as we consider reasonable);
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(c)
|
on a subsequent date for the payment of interest on the Securities, interest payments (or our funding costs as recognized in our accounts) under, or with respect to, the Securities are no longer fully deductible for UK
corporation tax purposes;
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(d)
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the Securities would no longer be treated as loan relationships for UK tax purposes;
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(e)
|
would, as a result of the Securities being in issue, result in our not being able to have losses or deductions set against the profits or gains, or profits or gains offset by the losses or deductions, of companies with
which we are or would otherwise be so grouped for applicable UK tax purposes (whether under the group relief system current as of the issue date or any similar system or systems having like effect as may from time to time exist);
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(f)
|
a future write-down of the principal amount of the Securities or conversion of the Securities into our ordinary shares would result in a UK tax liability, or the receipt of income or profit which would be subject to UK
tax, which would not otherwise have been the case as of the issue date of the relevant Securities; or
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(g)
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the Securities or any part thereof become treated as a derivative or an embedded derivative for UK tax purposes.
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Subject only to our obligation to use such endeavors as provided in paragraph (b), it will be sufficient for us to deliver to the trustee an
officers certificate stating that a Tax Event has occurred and is continuing and setting out the details thereof, as well as any opinion or certificate of an independent legal adviser on which such officers certificate is based. For
these purposes, the trustee and the paying agent will accept such officers certificate without further enquiry as sufficient evidence of the existence of such circumstances and such officers certificate will be conclusive and binding on
the securityholders.
Following a change in law (or in its official application or interpretation) after the issue date, if the
Securities would no longer be treated as loan relationships for UK tax purposes, the tax treatment of the Securities (with respect to us) may be uncertain and any outstanding Securities may result in our incurrence of unanticipated additional costs.
Moreover, following a change in law (or in its official application or interpretation) after the issue date, if the Securities (or any part thereof) would become treated as a derivative or an embedded derivative for UK tax purposes, we could be
exposed to unanticipated income statement volatility, which may be taxable.
A Capital Disqualification Event will be
deemed to have occurred if we determine, at any time after the issue date, there is a change in the regulatory classification of the Securities that results or will result in either
S-55
their (i) exclusion in whole or in part from the HSBC Groups regulatory capital (other than as a consequence of an Automatic Conversion); or (ii) reclassification in whole or in
part as a form of the HSBC Groups regulatory capital that is lower than additional Tier 1 capital.
Redemption Conditions
Notwithstanding anything to the contrary in the Indenture or the Securities, we may only redeem the Securities if (i) we have obtained the
Relevant Supervisory Consent, (ii) prior to the fifth anniversary of the issue date, if the Relevant Rules so oblige, we have demonstrated to the satisfaction of the Relevant Regulator that (x) the Special Event was not reasonably
foreseeable at the issue date and (y) in the case of a Tax Event, such Tax Event was material, (iii) we have complied with any alternative or additional
pre-conditions
to redemption, as applicable,
set out in the Relevant Rules and (iv) we have provided notice as described under
Redemption
Notice of Redemption
.
Notice of Redemption
Any
redemption of the Securities will be subject to our giving not less than 30 days, nor more than 60 days, prior notice to the securityholders via DTC (or, if the Securities are held in definitive form, to the securityholders at their
addresses shown on the register for the Securities);
provided
,
however
, that in the case of a Tax Event, no notice of redemption will be given earlier than 90 days prior to the earliest date on which we would be obliged to pay
Additional Amounts were a payment in respect of the Securities then due. Such notice will specify our election to redeem the Securities and the redemption date and will be irrevocable except in the limited circumstances described in the following
paragraph.
A redemption notice will be automatically rescinded and will have no force and effect, and no redemption amount will be due
and payable, if either (x) the Solvency Condition is not satisfied in respect of the relevant redemption amount on the applicable redemption date, (y) a Capital Adequacy Trigger Event occurs prior to the applicable redemption date (in
which case, an Automatic Conversion will occur as described under
Automatic Conversion Upon Capital Adequacy Trigger Event
) or (z) the relevant UK resolution authority exercises its UK
bail-in
power prior to the applicable redemption date. If a redemption notice is rescinded for any of the reasons described in the previous sentence, we will promptly deliver notice to the securityholders via
DTC (or, if the Securities are held in definitive form, to the securityholders at their addresses shown on the register for the Securities), specifying the occurrence of the relevant event.
Purchases
Members of the HSBC Group may
purchase, repurchase or otherwise acquire any of the outstanding Securities at the same or differing prices in the open market, negotiated transactions or otherwise without giving prior notice to or obtaining any consent from securityholders, in
accordance with the Relevant Rules and subject to obtaining the Relevant Supervisory Consent. For the avoidance of doubt, the Securities may be repurchased by members of the HSBC Group for market-making purposes in accordance with any permission
given by the Relevant Regulator pursuant to the Relevant Rules (including, without limitation, Article 29(3) of Commission Delegated Regulation (EU) No. 241/2014) within the limits prescribed in such permission.
Automatic Conversion Upon Capital Adequacy Trigger Event
Automatic Conversion
A
Capital Adequacy Trigger Event will occur if at any time the
end-point
CET1 Ratio is less than 7.0%. Whether a Capital Adequacy Trigger Event has occurred at any time will be determined by us, the
Relevant Regulator or any agent of the Relevant Regulator appointed for such purpose by the Relevant Regulator.
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If a Capital Adequacy Trigger Event occurs, then an Automatic Conversion will occur without
delay (but no later than one month following the date on which it is determined such Capital Adequacy Trigger Event has occurred), as described under
Automatic Conversion Upon Capital Adequacy Trigger
Event
Procedure
. An Automatic Conversion is the irrevocable and automatic release of all of our obligations under the Securities in consideration of our issuance of the Conversion Shares to the Conversion Shares
Depository (or to the relevant recipient in accordance with the terms of the Securities) (on behalf of the securityholders) on the date on which the Automatic Conversion will take place, or has taken place, as applicable (such date, the
Conversion Date), all in accordance with the terms of the Securities and the Indenture.
Subject to the conditions described
further under
Automatic Conversion Upon Capital Adequacy Trigger
Event
Procedure
, following a Capital Adequacy Trigger Event, we will deliver to the securityholders on the Settlement Date either
(i) Conversion Shares or (ii) if we elect, in our sole and absolute discretion, that a Conversion Shares Offer be made, the Conversion Shares Offer Consideration. For further information about Conversion Shares and the Conversion Shares
Offer, see
Automatic Conversion Upon Capital Adequacy Trigger Event
Conversion Shares
and
Automatic Conversion Upon Capital Adequacy Trigger Event
Conversion Shares Offer
,
respectively.
Effective upon, and following, a Capital Adequacy Trigger Event, other than any amounts payable in the case of our
winding-up
or the appointment of an administrator for our administration as described under
Subordination
, the securityholders will not have any rights against us with respect to repayment
of the principal amount of the Securities or payment of interest or any other amount on, or in respect of, the Securities, in each case that is not due and payable, which liabilities will be automatically released. Accordingly, the principal amount
of the Securities will equal zero at all times thereafter and any interest will be cancelled or deemed to have been cancelled at all times thereafter and will not be due and payable (see
InterestInterest Cancellation
),
including any interest in respect of an interest period ending on any interest payment date falling between the date of a Capital Adequacy Trigger Event and the Conversion Date. Although the principal amount of each Security will equal zero after a
Capital Adequacy Trigger Event for the avoidance of doubt, the Tradable Amount will remain unchanged as a result of the Automatic Conversion.
Effective upon, and following, an Automatic Conversion, all of our obligations under the Securities will be irrevocably and automatically
released in consideration of our issuance of the Conversion Shares to the Conversion Shares Depository on the Conversion Date, and under no circumstances will such released obligations be reinstated. With effect from the Conversion Date, the
securityholders will have recourse only to the Conversion Shares Depository for the delivery to them of Conversion Shares or, if we elect that a Conversion Shares Offer be made, of any Conversion Shares Offer Consideration to which such
securityholders are entitled. If we fail to issue and deliver the Conversion Shares to the Conversion Shares Depository in accordance with the terms of the Securities, the securityholders only right against us will be to claim to have such
Conversion Shares issued to the Conversion Shares Depository. If we have been unable to appoint a Conversion Shares Depository, we will effect, by means we deem reasonable under the circumstances (including, without limitation, issuance of the
Conversion Shares to another nominee or to the securityholders directly), the issuance and/or delivery of the Conversion Shares or Conversion Shares Offer Consideration, as applicable, to the securityholders, and such issuance will irrevocably and
automatically release all of the our obligations under the Securities as if the Conversion Shares had been issued to the Conversion Shares Depository.
Following the issuance of the Conversion Shares to the Conversion Shares Depository (or to the relevant recipient in accordance with the terms
of the Securities) on the Conversion Date, the Securities will remain in existence until the applicable Cancellation Date for the sole purpose of evidencing the securityholders right to receive Conversion Shares or Conversion Shares Offer
Consideration, as applicable, from the Conversion Shares Depository (or the relevant recipient in accordance with the terms of the Securities).
The Securities will not be convertible into Conversion Shares at the option of the securityholders at any time.
S-57
Conversion Shares
Conversion Shares means our ordinary shares to be issued to the Conversion Shares Depository (or to the relevant recipient in
accordance with the terms of the Securities) following an Automatic Conversion.
The number of Conversion Shares to be issued to the
Conversion Shares Depository (or to the relevant recipient in accordance with the terms of the Securities) on the Conversion Date will equal the quotient obtained by dividing the (i) aggregate principal amount of the Securities then outstanding
immediately prior to the Automatic Conversion on the Conversion Date (the Outstanding Amount) by (ii) the Conversion Price, rounded down, if necessary, to the nearest whole number of Conversion Shares. The Conversion Price is fixed
initially at $3.7881 per Conversion Share and is subject to certain anti-dilution adjustments, as described under
Anti-dilutionAdjustment of Conversion Price and Conversion Shares Offer Price
(the Conversion
Price). On the issue date, the Conversion Price will be equal to the Conversion Shares Offer Price (based on an exchange rate of £1.00 = $1.403). The number of Conversion Shares to be held by the Conversion Shares Depository for the
benefit of a securityholder will equal the product obtained by multiplying (i) the number of Conversion Shares thus calculated by (ii) the quotient obtained by dividing (x) the Tradable Amount held by such securityholder on the
Conversion Date by (y) the Outstanding Amount, such product to be rounded down, if necessary, to the nearest whole number of Conversion Shares. For the avoidance of doubt, fractions of Conversion Shares will not be issued following an Automatic
Conversion and no cash payment will be made in lieu thereof.
The Conversion Shares initially will be registered in the name of the
Conversion Shares Depository (or the relevant recipient in accordance with the terms of the Securities) (which will hold the Conversion Shares on behalf of the securityholders), and each securityholder will be deemed to have irrevocably directed us
to issue the Conversion Shares corresponding to the conversion of its holding of Securities to the Conversion Shares Depository. The Conversion Shares Depository will hold the Conversion Shares on behalf of the securityholders, who will be entitled
to direct the Conversion Shares Depository to exercise on their behalf all rights of one of our ordinary shareholders (including voting rights and rights to receive dividends);
provided
that the securityholders will not have any rights to
sell or otherwise transfer the Conversion Shares until such time as the Conversion Shares have been delivered to the securityholders in accordance with the procedures described further under
Automatic Conversion Upon Capital Adequacy
Trigger EventProcedureSettlement Procedure
.
While any Security remains outstanding, we will at all times keep
available for issue, free from
pre-emptive
or other preferential rights, sufficient ordinary shares to enable an Automatic Conversion to be satisfied in full. The Conversion Shares issued following an
Automatic Conversion will be fully paid and
non-assessable
and will in all respects rank
pari passu
with our fully paid ordinary shares in issue on the Conversion Date, except in any such case for any
right excluded by mandatory provisions of applicable law, and except that the Conversion Shares so issued will not rank for (or, as the case may be, the relevant securityholder will not be entitled to receive) any rights, distributions or payments,
the entitlement to which falls prior to the Conversion Date.
If a Qualifying Takeover Event occurs, and the Conversion Date falls on or
after the QTE Effective Date, then in such case Approved Entity Shares will be issued by the Approved Entity to the Conversion Shares Depository instead of Conversion Shares with the same effect as if Conversion Shares had been issued, as described,
and subject to the conditions specified, under
Qualifying Takeover Event
.
Conversion Shares Offer
We may, in our sole and absolute discretion and following the occurrence of an Automatic Conversion, elect in the Conversion Shares Offer
Notice that the Conversion Shares Depository make an offer of all or some of the Conversion Shares issued in connection with the 2023 Securities or the 2028 Securities, as applicable, to all or some of our ordinary shareholders at a cash price per
Conversion Share equal to the Conversion Shares Offer Price (the Conversion Shares Offer). The Conversion Shares Offer Price is fixed initially at £2.70 per
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Conversion Share and is subject to certain anti-dilution adjustments, as described under
Anti-dilutionAdjustment of Conversion Price and Conversion Shares Offer
Price
(the Conversion Shares Offer Price). On the issue date, the Conversion Shares Offer Price and the Conversion Price will be equal (based on an exchange rate of £1.00 = $1.403).
Upon completion of the Conversion Shares Offer, we or the Conversion Shares Depository will provide notice to the securityholders of the
composition of the Conversion Shares Offer Consideration (including the
pro
rata
cash component (as defined below) thereof, if any) per $1,000 Tradable Amount. The Conversion Shares Offer Consideration in respect of
each Security will be, (i) if all the Conversion Shares are sold in the Conversion Shares Offer, the
pro rata
share of the cash proceeds from such sale attributable to such Security converted from sterling (or any such other currency in
which our ordinary shares are denominated) into US dollars at the Prevailing Rate as of the date that is three Depository Business Days prior to the relevant Settlement Date as determined by the Conversion Shares Depository (less the
pro
rata
share of any foreign exchange transaction costs) (the
pro rata
cash component), (ii) if some but not all of the Conversion Shares are sold in the Conversion Shares Offer, (x) the
pro rata
cash component and
(y) the
pro rata
share of the Conversion Shares not sold pursuant to the Conversion Shares Offer attributable to such Security rounded down to the nearest whole number of Conversion Shares (the
pro rata
Conversion Shares
component), and (iii) if no Conversion Shares are sold in a Conversion Shares Offer, the relevant Conversion Shares attributable to such Security rounded down to the nearest whole number of Conversion Shares, subject in the case of
(i) and (ii)(x) above to deduction from any such cash proceeds of an amount equal to the
pro rata
share of any stamp duty, stamp duty reserve tax, or any other capital, issue, transfer, registration, financial transaction or
documentary tax that may arise or be paid as a consequence of the transfer of any interest in the Conversion Shares to the Conversion Shares Depository (or the relevant recipient in accordance with the terms of the Securities) in order for the
Conversion Shares Depository (or the relevant recipient in accordance with the terms of the Securities) to conduct the Conversion Shares Offer.
We may, on behalf of the Conversion Shares Depository, appoint an agent to act as placement or other agent to facilitate the Conversion Shares
Offer (a Conversion Shares Offer Agent). If we elect a Conversion Shares Offer to be conducted, the Conversion Shares Offer Period, during which time the Conversion Shares Offer may be made, will end no later than 40 business days
following the delivery of the Conversion Shares Offer Notice.
Any Conversion Shares Offer will be made subject to applicable laws and
regulations in effect at the relevant time and will be conducted, if at all, only to the extent that we, in our sole and absolute discretion, determine that the Conversion Shares Offer is practicable. We or the purchasers of the Conversion Shares
sold in any Conversion Shares Offer will bear the costs and expenses of any Conversion Shares Offer (with the exception of any stamp duty, stamp duty reserve tax, or any other capital, issue, transfer, registration, financial transaction or
documentary tax that may arise or be paid as a consequence of the transfer of any interest in the Conversion Shares to the Conversion Shares Depository (or the relevant recipient in accordance with the terms of the Securities) in order for the
Conversion Shares Depository (or the relevant recipient in accordance with the terms of the Securities) to conduct the Conversion Shares Offer), including the fees of the Conversion Shares Offer Agent, if any.
We reserve the right, in our sole and absolute discretion, to terminate the Conversion Shares Offer at any time during the Conversion Shares
Offer Period by providing at least three business days notice to the trustee and the paying agent directly and to the securityholders via DTC (or, if the Securities are held in definitive form, to the securityholders at their addresses shown
on the register for the Securities), and, if we do so, we may, in our sole and absolute discretion, take steps (including, without limitation, changing the Suspension Date) to deliver to the securityholders (or the custodian, nominee, broker or
other representative thereof) the Conversion Shares at a time that is earlier than the time at which such securityholders (or the custodian, nominee, broker or other representative thereof) would have otherwise received the Conversion Shares Offer
Consideration, had the Conversion Shares Offer been completed.
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The
pro rata
cash component will be payable by the Conversion Shares Depository to
the securityholders (or the custodian, nominee, broker or other representative thereof) whether or not the Solvency Condition is satisfied.
We currently expect that in determining whether or not a Conversion Shares Offer will be conducted and, if one is to be conducted, how and
to whom such Conversion Shares Offer will be made, our board of directors would, in accordance with their duties, have regard to a variety of matters, including, without limitation, the interests of our ordinary shareholders, taken as a whole, and
the potential impact of a Conversion Shares Offer on our financial stability. Further, neither the occurrence of a Capital Adequacy Trigger Event nor following the occurrence of a Capital Adequacy Trigger Event, the election (if any) by us to
undertake a Conversion Shares Offer on the terms set out herein, will preclude us from undertaking a rights issue or other equity issuance at any time on such terms as we deem appropriate, at our sole discretion, includingfor the avoidance of
doubtthe offer of our ordinary shares at or below the Conversion Shares Offer Price. Moreover, there can be no assurance that the Conversion Shares Offer would be conducted on an
SEC-registered
basis.
Procedure
Automatic Conversion
Procedure
We will (x) immediately inform the Relevant Regulator of the occurrence of a Capital Adequacy Trigger Event and
(y) deliver an Automatic Conversion Notice on or as soon as practicable after the date on which it is determined such Capital Adequacy Trigger Event has occurred.
The Automatic Conversion Notice will be a written notice to be delivered by us to the trustee and the paying agent directly and to
the securityholders via DTC (or, if the Securities are held in definitive form, to the securityholders at their addresses shown on the register for the Securities) specifying (i) that a Capital Adequacy Trigger Event has occurred, (ii) the
Conversion Date or expected Conversion Date, (iii) that we have the option, at our sole and absolute discretion, to elect that a Conversion Shares Offer be conducted and that we will issue a Conversion Shares Offer Notice within 10 business
days following the Conversion Date notifying the securityholders of our election and (iv) that the Securities will remain in existence for the sole purpose of evidencing the right of the securityholders to receive Conversion Shares or the
Conversion Shares Offer Consideration, as applicable, from the Conversion Shares Depository (or the relevant recipient in accordance with the terms of the Securities), and that the Securities may continue to be transferable until the Suspension
Date, which will be specified in the Conversion Shares Offer Notice. The date on which the Automatic Conversion Notice is dispatched by us to DTC (or, if the Securities are held in definitive form, to the trustee) will be the date on which such
notice is deemed to have been given.
The Automatic Conversion will occur without delay on the Conversion Date (which will be no later
than one month following the date on which it is determined such Capital Adequacy Trigger Event has occurred). Within 10 business days following the Conversion Date, we will deliver a Conversion Shares Offer Notice. The Conversion Shares Offer
Notice will be a written notice to be delivered by us to the trustee and the paying agent directly and to the securityholders via DTC (or, if the Securities are held in definitive form, to the securityholders at their addresses shown on the
register for the Securities) specifying (i) whether or not we have elected that a Conversion Shares Offer be made and, if so, the Conversion Shares Offer Period, (ii) the Suspension Date and (iii) if we have been unable to appoint a
Conversion Shares Depository, such other arrangements for the issuance and/or delivery of the Conversion Shares or the Conversion Shares Offer Consideration, as applicable, to the securityholders. The Suspension Date will be the date
specified in the Conversion Shares Offer Notice as the date on which DTC will suspend all clearance and settlement of transactions in the Securities in accordance with its rules and procedures, which date will be no later than 38 business days
after the delivery of the Conversion Shares Offer Notice to DTC (and, if we elect that a Conversion Shares Offer be made, such date will be at least two business days prior to the end of the relevant Conversion Shares Offer Period).
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On the Suspension Date, DTC will block all positions relating to the Securities, which will
suspend all clearance and settlement of transactions in the Securities through DTC. As a result, the securityholders will not be able to settle the transfer of any Securities through DTC following the Suspension Date, and any sale or other transfer
of the Securities that a securityholder may have initiated prior to the Suspension Date that is scheduled to settle after the Suspension Date will be rejected by DTC and will not be settled through DTC. Moreover, the Securities may cease to be
admitted to the Irish Stock Exchanges Official List and to be traded on the GEM (the exchange regulated market of the Irish Stock Exchange) after the Suspension Date.
The procedures set forth in this section are subject to change to reflect changes in DTCs practices, and we may make changes to the
procedures set forth in this section to the extent reasonably necessary, in our opinion, to reflect such changes in DTCs practices.
Settlement
Procedure
On the Suspension Date, we will deliver an Automatic Conversion Settlement Request Notice. The Automatic Conversion
Settlement Request Notice will be the written notice to the trustee and the paying agent directly and to the securityholders via DTC (or, if the Securities are held in definitive form, to the securityholders at their addresses shown on the
register for the Securities) (i) requesting that the securityholders complete an Automatic Conversion Settlement Notice and (ii) specifying (a) the Notice
Cut-off
Date and (b) the Final
Cancellation Date.
The securityholders (or the custodian, nominee, broker or other representative thereof) will not receive delivery of
the relevant Conversion Shares or the Conversion Shares Offer Consideration, as applicable, unless such securityholders (or the custodian, nominee, broker or other representative thereof) deliver the applicable Automatic Conversion Settlement Notice
to the Conversion Shares Depository on or before the Notice
Cut-off
Date;
provided
that, if such delivery is made after the end of normal business hours at the specified office of the Conversion Shares
Depository, such delivery will be deemed for all purposes to have been made or given on the next following business day.
The
Automatic Conversion Settlement Notice will be a written notice to be delivered by a securityholder (or custodian, broker, nominee or other representative thereof) to the Conversion Shares Depository (or to the relevant recipient of the
Conversion Shares in accordance with the terms of the Securities), with a copy to the trustee and the paying agent, no earlier than the Suspension Date, containing the following information: (i) the name of the securityholder (or custodian,
broker, nominee or other representative thereof), (ii) the Tradable Amount held by such securityholder (or custodian, broker, nominee or other representative thereof) on the date of such notice, (iii) the name to be entered in our share
register, (iv) the details of the CREST or other clearing system account or, if the Conversion Shares are not a participating security in CREST or another clearing system, the address to which the Conversion Shares (or the
pro rata
Conversion Shares component, if any) should be delivered, (v) for purposes of receiving any
pro rata
cash component (if not expected to be delivered through DTC), the necessary details and instructions to deposit such
pro rata
cash component to a bank account that accepts funds in US dollars and (vi) such other details as may be required by the Conversion Shares Depository. The Automatic Conversion Settlement Notice must be given in accordance with the respective
standard procedures of DTC (which may include, without limitation, delivery of the notice to the Conversion Shares Depository by electronic means) and in a respective form acceptable to DTC and the Conversion Shares Depository (or, if the Securities
are held in definitive form, the Automatic Conversion Settlement Notice must be delivered to the specified office of the Conversion Shares Depository together with the relevant Securities).
Each Automatic Conversion Settlement Notice will be irrevocable. The Conversion Shares Depository will determine, in its sole and absolute
discretion, whether any Automatic Conversion Settlement Notice has been properly completed and delivered, and such determination will be conclusive and binding on the relevant securityholder. If any securityholder fails to properly complete and
deliver an Automatic Conversion Settlement Notice and the relevant Securities, if applicable, the Conversion Shares Depository will be entitled to treat such Automatic Conversion Settlement Notice as null and void.
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Subject to satisfaction of the requirements and limitations set forth in the Indenture and
provided that the Automatic Conversion Settlement Notice and the relevant Securities, if applicable, are delivered, the Conversion Shares Depository will deliver the relevant Conversion Shares or Conversion Shares Offer Consideration, as applicable,
on the applicable Settlement Date, to the securityholders (or custodian, nominee, broker or other representative thereof) having completed the relevant Automatic Conversion Settlement Notice and in accordance with the instructions given in such
Automatic Conversion Settlement Notice.
If any securityholder (or custodian, nominee, broker or other representative thereof) fails to
deliver an Automatic Conversion Settlement Notice (and the relevant Securities, if applicable) to the Conversion Shares Depository on or before the Notice
Cut-off
Date, the Conversion Shares Depository will
continue to hold the Conversion Shares or the Conversion Shares Offer Consideration, as applicable, until an Automatic Conversion Settlement Notice (and the relevant Securities, if applicable) is so delivered;
provided
that the relevant
Securities will be cancelled on the Final Cancellation Date, and any securityholder (or custodian, nominee, broker or other representative thereof) delivering an Automatic Conversion Settlement Notice after the Notice
Cut-off
Date will be required to provide evidence of its entitlement to the relevant Conversion Shares or Conversion Shares Offer Consideration, as applicable, satisfactory to the Conversion Shares Depository,
in its sole and absolute discretion, in order to receive delivery of such Conversion Shares or Conversion Shares Offer Consideration, as applicable. We will have no liability to any securityholder for any loss resulting from such
securityholders failure to receive any Conversion Shares or Conversion Shares Offer Consideration, as applicable, or from any delay in the receipt thereof, in each case as a result of such securityholder (or custodian, nominee, broker or other
representative thereof) failing to duly submit an Automatic Conversion Settlement Notice (and the relevant Securities, if applicable) on a timely basis or at all.
Neither we nor any member of the HSBC Group will be liable for any taxes or duties (including, without limitation, any capital, stamp, issue
and registration or transfer taxes or duties) arising on conversion or that may arise or be paid as a consequence of the issue and delivery of Conversion Shares following an Automatic Conversion. The securityholders must pay any taxes or duties
(including, without limitation, any capital, stamp, issue and registration and/or transfer taxes or duties) arising on conversion in connection with the issue and delivery of Conversion Shares to the Conversion Shares Depository on behalf of such
securityholder and such securityholder must pay all, if any, such taxes or duties arising by reference to any disposal or deemed disposal of such securityholders Securities or interest therein. Any taxes or duties arising on delivery or
transfer of Conversion Shares to a purchaser in any Conversion Shares Offer will be payable by the relevant purchaser of those Conversion Shares.
The Conversion Shares and any
pro rata
Conversion Shares component will not be available for delivery (i) to, or to a nominee for,
Clearstream Luxembourg or Euroclear or any other person providing a clearance service within the meaning of Section 96 of the Finance Act 1986 of the UK or (ii) to a person, or nominee or agent for a person, whose business is or includes
issuing depository receipts within the meaning of Section 93 of the Finance Act 1986 of the UK, in each case at any time prior to the abolition day as defined in Section 111(1) of the Finance Act 1990 of the UK, or, if
earlier, such other time at which we, in our absolute discretion, determine that no charge under Section 67, 70, 93 or 96 of the Finance Act 1986 or any similar charge (under any successor legislation) would arise as a result of such delivery
or (iii) to the CREST account of such a person described in (i) or (ii).
Delivery of the Conversion Shares or
pro rata
Conversion Shares component, as applicable, to the securityholders will be made in accordance with the procedures set forth in this section, which remain subject to change to reflect changes in DTCs practices. Moreover, we may make changes to
the procedures set forth in this section to the extent such changes are reasonably necessary, in our opinion, to effect the delivery of the Conversion Shares or Conversion Shares Offer Consideration, as applicable, to the securityholders.
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Agreement with respect to Automatic Conversion
By its acquisition of the Securities, each securityholder (which, for these purposes, includes each beneficial owner) will (i) consent to
all of the terms and conditions of the Securities, including (x) the occurrence of a Capital Adequacy Trigger Event and any related Automatic Conversion following a Capital Adequacy Trigger Event and (y) the appointment of the Conversion
Shares Depository (or the relevant recipient in accordance with the terms of the Securities), the issuance of the Conversion Shares to the Conversion Shares Depository (or the relevant recipient in accordance with the terms of the Securities) and
the potential sale of the Conversion Shares pursuant to a Conversion Shares Offer, (ii) acknowledge and agree that effective upon, and following, a Capital Adequacy Trigger Event, other than any amounts payable in the case of our
winding-up
or the appointment of an administrator for our administration as described under
Subordination
, no securityholder will have any rights against us with respect to repayment of the
principal amount of the Securities or payment of interest or any other amount on or in respect of such Securities, in each case that is not due and payable, which liabilities will be automatically released, (iii) acknowledge and agree that
events in, and related to, clause (i) may occur without any further action on the part of such securityholder (or beneficial owner), the trustee or the paying agent, (iv) authorize, direct and request DTC and any direct participant in DTC
or other intermediary through which it holds such Securities to take any and all necessary action, if required, to implement the Automatic Conversion without any further action or direction on the part of such securityholder (or beneficial owner),
the trustee or the paying agent and (v) waive, to the extent permitted by the Trust Indenture Act, any claim against the trustee arising out of its acceptance of its trusteeship for the Securities, including, without limitation, claims related
to or arising out of or in connection with a Capital Adequacy Trigger Event and/or any Automatic Conversion.
Agreement with respect to any
Conversion Shares Offer
If we elect, in our sole and absolute discretion, that a Conversion Shares Offer be conducted, by its
acquisition of the Securities, each securityholder (which, for these purposes, includes each beneficial owner) will: (i) consent to (x) any Conversion Shares Offer and to the Conversion Shares Depositorys using the Conversion Shares
to settle any Conversion Shares Offer in accordance with the terms of the Securities, notwithstanding that such Conversion Shares are held by the Conversion Shares Depository on behalf of the securityholders and (y) the transfer of the
beneficial interest it holds in the Conversion Shares to the Conversion Shares Depository in connection with the Conversion Shares Offer in accordance with the terms of the Securities, and (ii) irrevocably agree that (x) we, the Conversion
Shares Depository (or the relevant recipient in accordance with the terms of the Securities) and the Conversion Shares Offer Agent, if any, may take any and all actions necessary to conduct the Conversion Shares Offer in accordance with the terms of
the Securities, and (y) neither we, the trustee, the paying agent, the Conversion Shares Depository nor the Conversion Shares Offer Agent, if any, will, to the extent permitted by applicable law, incur any liability to the securityholders in
respect of the Conversion Shares Offer (except for the obligations of the Conversion Shares Depository in respect of the securityholders entitlement to any Conversion Shares Offer Consideration).
Agreement with Respect to the Exercise of UK
Bail-in
Power
By its acquisition of the Securities, each securityholder (which, for these purposes, includes each beneficial owner) will acknowledge, accept,
consent and agree, notwithstanding any other term of the Securities, the Indenture or any other agreements, arrangements or understandings between us and any securityholder, to be bound by (a) the effect of the exercise of any UK
bail-in
power by the relevant UK resolution authority that may include and result in any of the following, or some combination thereof: (i) the reduction of all, or a portion, of the Amounts Due; (ii) the
conversion of all, or a portion, of the Amounts Due into our or another persons ordinary shares, other securities or other obligations (and the issue to, or conferral on, the securityholder of such ordinary shares, other securities or other
obligations), including by means of an amendment, modification or variation of the terms of the Securities or the Indenture; (iii) the cancellation of the Securities; and/or (iv) the amendment or alteration of the redemption date of the
Securities or amendment of the amount of interest payable on the Securities, or the interest payment dates, including by suspending payment for a temporary period; and
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(b) the variation of the terms of the Securities or the Indenture, if necessary, to give effect to the exercise of any UK
bail-in
power by the
relevant UK resolution authority. No repayment or payment of Amounts Due will become due and payable or be paid after the exercise of any UK
bail-in
power by the relevant UK resolution authority if and to the
extent such amounts have been reduced, converted, cancelled, amended or altered as a result of such exercise. Moreover, each securityholder (which, for these purposes, includes each beneficial owner) will consent to the exercise of any UK
bail-in
power as it may be imposed without any prior notice by the relevant UK resolution authority of its decision to exercise such power with respect to the Securities.
For these purposes,
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(a)
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Amounts Due are the principal amount of, and any accrued but unpaid interest, including any Additional Amounts, on, the Securities. References to such amounts will include amounts that have become due and
payable, but which have not been paid, prior to the exercise of any UK
bail-in
power by the relevant UK resolution authority;
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(b)
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a UK
bail-in
power is any write-down, conversion, transfer, modification, or suspension power existing from time to time under, and exercised in compliance with, any
laws, regulations, rules or requirements in effect in the UK, relating to the transposition of the BRRD or otherwise, including but not limited to the Banking Act and the instruments, rules and standards created thereunder, pursuant to which
(i) any obligation of a regulated entity (or other affiliate of such regulated entity) can be reduced, cancelled, modified, or converted into shares, other securities, or other obligations of such regulated entity or any other person (or
suspended for a temporary period); and (ii) any right in a contract governing an obligation of a regulated entity may be deemed to have been exercised. A reference to a regulated entity is to any BRRD Undertaking as such term is
defined under the PRA Rulebook promulgated by the PRA, as amended from time to time, which includes certain credit institutions, investment firms, and certain of their parent or holding companies, or any comparable future definition intended to
designate entities within the scope of the UK recovery and resolution regime; and
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(c)
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the relevant UK resolution authority is any authority with the ability to exercise a UK
bail-in
power.
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For the avoidance of doubt, the potential conversion of the Securities into shares, other securities or other obligations in connection with
the exercise of any UK
bail-in
power by the relevant UK resolution authority is separate and distinct from an Automatic Conversion following a Capital Adequacy Trigger Event.
According to the principles of the Banking Act and the BRRD, we expect that the relevant UK resolution authority would respect creditor
hierarchies when exercising its UK
bail-in
power in respect of the Securities and that the securityholders would be treated
pari passu
with the claims of holders of all our additional Tier 1 instruments
which in each case by law rank, or by their terms are expressed to rank,
pari passu
with the Securities at that time being subjected to the exercise of the UK
bail-in
power (or, with claims in respect
of ordinary shares, in the event the exercise of such UK
bail-in
power occurs in the intervening period between a Capital Adequacy Trigger Event and the Conversion Date).
DTC
Notice via DTC
If notice is given by us via DTC in accordance with the terms of the Securities and the Indenture, we will request that DTC, pursuant to the
applicable rules and operating procedures of DTC then in effect, transmit such notice to the direct participants of DTC holding the Securities at such time. Moreover, any notice by DTC to participating institutions and by these participants to
street name holders of beneficial interests in the Securities will be made according to arrangements among them and may be subject to statutory or regulatory requirements.
UK
Bail-in
Power
Upon the exercise of the UK
bail-in
power by the relevant UK resolution authority with respect to the
Securities, we will provide a written notice to the securityholders through DTC as soon as practicable regarding
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such exercise of the UK
bail-in
power. We will also deliver a copy of such notice to the trustee for information purposes.
By purchasing the Securities, each securityholder (which, for these purposes, includes each beneficial owner) will be deemed to have
authorized, directed and requested DTC and any direct participant in DTC or other intermediary through which it holds such Securities to take any and all necessary action, if required, to implement the exercise of the UK
bail-in
power with respect to the Securities as it may be imposed, without any further action or direction on the part of such securityholder, the trustee or the paying agent.
Anti-dilution
Adjustment of Conversion Price and
Conversion Shares Offer Price
Upon the occurrence of any of the events described below, the Conversion Price and the Conversion
Shares Offer Price (each, a Price and, together, the Prices) will be adjusted as follows:
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(a)
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If and whenever there is a consolidation, reclassification, redesignation or subdivision in relation to our ordinary shares which alters the number of our ordinary shares in issue, each Price will be adjusted by
multiplying the relevant Price in effect immediately prior to such consolidation, reclassification or subdivision by the following fraction:
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where:
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A
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is the aggregate number of our ordinary shares in issue immediately before such consolidation, reclassification, redesignation or subdivision, as the case may be;
and
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B
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is the aggregate number of our ordinary shares in issue immediately after, and as a result of, such consolidation, reclassification, redesignation or subdivision, as the case may be.
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Such adjustment will become effective on the date the consolidation, reclassification, redesignation or
subdivision, as the case may be, takes effect.
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(b)
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If and whenever we issue any ordinary shares to our ordinary shareholders credited as fully paid by way of capitalization of profits or reserves (including any share premium account or capital redemption reserve) other
than (1) where any such ordinary shares are or are to be issued instead of the whole or part of a Cash Dividend which our ordinary shareholders would or could otherwise have elected to receive, (2) where our ordinary shareholders may elect
to receive a Cash Dividend in lieu of such ordinary shares or (3) where any such ordinary shares are or are expected to be issued in lieu of a dividend (whether or not a Cash Dividend equivalent or amount is announced or would otherwise be
payable to our ordinary shareholders, whether at their election or otherwise), each Price will be adjusted by multiplying the relevant Price in effect immediately prior to such issue by the following fraction:
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where:
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|
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A
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is the aggregate number of our ordinary shares in issue immediately before such issue; and
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B
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is the aggregate number of our ordinary shares in issue immediately after such issue.
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Such adjustment will become effective on the date of issue of such ordinary shares.
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(c)
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If and whenever we issue our ordinary shares to our shareholders as a class by way of rights, or we or any member
of the HSBC Group or (at the direction or request or pursuant to arrangements with us or
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any member of the HSBC Group) any other company, person or entity issues or grants to our ordinary shareholders as a class by way of rights, any options, warrants or other rights to subscribe for
or purchase our ordinary shares, or any securities which by their terms of issue carry (directly or indirectly) rights of conversion into, or exchange or subscription for, any of our ordinary shares (or grants any such rights in respect of existing
securities so issued), in each case at a price per ordinary share which is less than 95% of the Current Market Price on the Effective Date, each Price will be adjusted by multiplying the relevant Price in effect immediately prior to the Effective
Date by the following fraction:
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where:
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A
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is the aggregate number of our ordinary shares in issue on the Effective Date;
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B
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is the number of our ordinary shares which the aggregate consideration (if any) receivable for our ordinary shares issued by way of rights, or for the securities issued by way of rights, or for the options or warrants
or other rights issued by way of rights and for the total number of our ordinary shares deliverable on the exercise thereof, would purchase at such Current Market Price on the Effective Date; and
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C
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is the number of our ordinary shares to be issued or, as the case may be, the maximum number of our ordinary shares which may be issued upon exercise of such options, warrants or rights calculated as of the date of
issue of such options, warrants or rights or upon conversion or exchange or exercise of rights of subscription or purchase in respect thereof at the initial conversion, exchange, subscription or purchase price or rate;
provided
that if, on
the Effective Date, such number of ordinary shares is to be determined by reference to the application of a formula or other variable feature or the occurrence of any event at some subsequent time, then C will be determined by the
application of such formula or variable feature or as if the relevant event occurs or had occurred as of the Effective Date and as if such conversion, exchange, subscription, purchase or acquisition had taken place on the Effective Date.
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Such adjustment will become effective on the Effective Date.
For the purpose of any calculation of the consideration receivable or price pursuant to this paragraph, the following provisions will apply:
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(i)
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the aggregate consideration receivable or price for our ordinary shares issued for cash will be the amount of such cash;
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(ii)
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(x) the aggregate consideration receivable or price for our ordinary shares to be issued or otherwise made
available upon the conversion or exchange of any securities will be deemed to be the consideration or price received or receivable for any such securities and (y) the aggregate consideration receivable or price for our ordinary shares to be
issued or otherwise made available upon the exercise of rights of subscription attached to any securities or upon the exercise of any options, warrants or rights will be deemed to be that part (which may be the whole) of the consideration or price
received or receivable for such securities or, as the case may be, for such options, warrants or rights which are attributed by us to such rights of subscription or, as the case may be, such options, warrants or rights or, if no part of such
consideration or price is so attributed, the Fair Market Value of such rights of subscription or, as the case may be, such options, warrants or rights as of the relevant Effective Date, plus in the case of each of (x) and (y), the additional
minimum consideration receivable or price (if any) upon the conversion or exchange of such securities, or upon the exercise of such rights or subscription attached thereto or, as the case may be, upon exercise of such options, warrants or rights and
(z) the consideration
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receivable or price per ordinary share upon the conversion or exchange of, or upon the exercise of such rights of subscription attached to, such securities or, as the case may be, upon the
exercise of such options, warrants or rights will be the aggregate consideration or price referred to in (x) or (y) (as the case may be) divided by the number of our ordinary shares to be issued upon such conversion or exchange or exercise at
the initial conversion, exchange or subscription price or rate;
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(iii)
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if the consideration or price determined pursuant to (i) or (ii) (or any component thereof) is expressed in a currency other than US dollars, it will be converted into US dollars at the Prevailing Rate on the
relevant Effective Date (in the case of (i) above) or the relevant date of first public announcement (in the case of (ii) above);
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(iv)
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in determining the consideration or price pursuant to the above, no deduction will be made for any commissions or fees (howsoever described) or any expenses paid or incurred for any underwriting, placing or management
of the issue of the relevant ordinary shares or securities or options, warrants or rights, or otherwise in connection therewith; and
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(v)
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the consideration or price will be determined as provided above on the basis of the consideration or price received, receivable, paid or payable, regardless of whether all or part thereof is received, receivable, paid
or payable by or to us or another entity.
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(d)
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If and whenever we pay any Extraordinary Dividend to our ordinary shareholders as a class, each Price will be adjusted by multiplying the relevant Price in effect immediately prior to the Effective Date by the following
fraction:
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where:
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A
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is the Current Market Price of one ordinary share on the Effective Date; and
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B
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is the portion of the aggregate Extraordinary Dividend attributable to one Ordinary Share, with such portion being determined by dividing the aggregate Extraordinary Dividend by the number of our ordinary shares
entitled to receive the relevant Extraordinary Dividend. If the Extraordinary Dividend is expressed in a currency other than US dollars, it will be converted into US dollars at the Prevailing Rate on the relevant Effective Date.
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Such adjustment will become effective on the Effective Date.
Notwithstanding provisions of this section:
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(i)
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where the events or circumstances giving rise to any adjustment pursuant to this section have already resulted or will result in an adjustment to the Prices or where the events or circumstances giving rise to any
adjustment arise by virtue of any other events or circumstances that have already given or will give rise to an adjustment to the Prices or where more than one event that gives rise to an adjustment to the Prices occurs within such a short period of
time that, in our opinion, a modification to the operation of the adjustment provisions is required to give the intended result, such modification will be made to the operation of the adjustment provisions as may be determined by an Independent
Financial Adviser to be in its opinion appropriate to give the intended result;
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(ii)
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such modification will be made to the operation of this section as may be determined by an Independent Financial Adviser to be in its opinion appropriate (x) to ensure that an adjustment to the Prices or the
economic effect thereof will not be taken into account more than once, (y) to ensure that the economic effect of an Extraordinary Dividend is not taken into account more than once and (z) to reflect a redenomination of the issued ordinary
shares for the time being into a new currency;
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(iii)
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for the avoidance of doubt, the occurrence of any other event in respect of our ordinary shares that is not an applicable Adjustment Event in relation to the Securities or the conversion of the Securities into our
ordinary shares pursuant to this section will not result in an adjustment of the Prices; and
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(iv)
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no adjustment will be made to the Prices where our ordinary shares or other securities (including rights, warrants and options) are issued, offered, exercised, allotted, purchased, appropriated, modified or granted to,
or for the benefit of, employees or former employees (including directors holding or formerly holding executive office or the personal service company of any such person) or their spouses or relatives, in each case, of us or any company in the HSBC
Group or any associated company or to a trustee or trustees to be held for the benefit of any such person, in any such case pursuant to any share or option scheme.
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On any adjustment, if a resultant Price has more decimal places than the initial Price, it will be rounded to the same number of decimal
places as the initial Price. No adjustment will be made to a Price where such adjustment (rounded down if applicable) would be less than 1% of such Price then in effect. Any adjustment not required to be made, and/or any amount by which a Price has
been rounded down, will be carried forward and taken into account in any subsequent adjustment, and such subsequent adjustment will be made on the basis that the adjustment not required to be made had been made at the relevant time and/or, as the
case may be, that the relevant rounding down had not been made.
The Prices will not in any event be reduced to below the nominal value of
one of our ordinary shares for the time being. We undertake that we will not take any action, and will procure that no action is taken, that would otherwise result in an adjustment to the Prices to below such nominal value.
If any doubt arises as to whether an adjustment falls to be made to either Price or as to the appropriate adjustment to such Prices, we may at
our discretion appoint an Independent Financial Adviser and, following consultation between us and such Independent Financial Adviser, a written opinion of such Independent Financial Adviser in respect thereof will be conclusive and binding on us,
the trustee, the paying agent and the securityholders, save in the case of manifest error.
Notice of any adjustments to the Prices will
be given by us to the securityholders via DTC (or, if the Securities are held in definitive form, via the trustee) promptly after the determination thereof.
Although the Prices will be adjusted in certain instances (as described above and elsewhere in this prospectus supplement) in an effort to
preserve the securityholders economic interest in us, adjustments are not required for every corporate or other event that may affect the market price of the Conversion Shares and an Independent Financial Adviser may make modifications as it
determines to be appropriate. See
Risk FactorsRisks Relating to the SecuritiesYou do not have anti-dilution protection in all circumstances
.
No Retroactive Adjustments
We
will not issue any additional Conversion Shares if the Automatic Conversion occurs after the record date in respect of any consolidation, reclassification or
sub-division
as described in the first clause
(a) of Anti-dilution
Adjustment of Conversion Price and Conversion Shares Offer Price
, or after the record date or other due date for the establishment of entitlement for any such issue, distribution, grant or
offer (as the case may be) as is described in clauses (b) through (d) of
Anti-dilutio
n
Adjustment of Conversion Price and Conversion Shares Offer Price
, but before the relevant adjustment to the
Prices becomes effective under such clauses.
Qualifying Takeover Event
Within 10 business days following the occurrence of a Takeover Event, we will deliver a Takeover Event Notice. A Takeover Event
Notice will be a notice to the securityholders notifying them that a Takeover Event
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has occurred and specifying: (1) the identity of the Acquirer; (2) whether or not the Takeover Event is a Qualifying Takeover Event; (3) in the case of a Qualifying Takeover Event,
if determined at such time, the New Conversion Price and the New Conversion Shares Offer Price; and (4) if applicable, the QTE Effective Date.
A Takeover Event means any person or persons acting in concert (as defined in the Takeover Code of the UK Panel on Takeovers and
Mergers) that acquires control of us. For these purposes control means (a) the acquisition or holding of legal or beneficial ownership of more than 50% of our issued ordinary shares or (b) the right to appoint and/or remove all
or the majority of the members of our board of directors, whether obtained directly or indirectly and whether obtained by ownership of share capital, contract or otherwise. A Takeover Event will constitute a Qualifying Takeover Event
where (i) the Acquirer is an Approved Entity and (ii) the New Conversion Condition is satisfied.
If the Takeover Event is a
Qualifying Takeover Event, the Securities will, where the Conversion Date falls on or after the QTE Effective Date, be converted into or exchanged for Approved Entity Shares,
mutatis mutandis
as provided under
Automatic
Conversion Upon Capital Adequacy Trigger Event
, at a Conversion Price that will initially be the New Conversion Price, which may be higher or lower than the Conversion Price. In addition, we will retain the right to elect in the Conversion
Shares Offer Notice that the Conversion Shares Depository make a Conversion Shares Offer at the New Conversion Shares Offer Price.
The
New Conversion Price and the New Conversion Shares Offer Price each will be subject to adjustment in the circumstances provided for under
Anti-dilutionAdjustment of Conversion Price and Conversion Shares Offer Price
(if necessary with such modifications and amendments as an Independent Financial Adviser will determine to be appropriate), and we will give notice to the securityholders of the New Conversion Price and the New Conversion Shares Offer Price and of
any such modifications and amendments thereafter.
In the case of a Qualifying Takeover Event we will, to the extent permitted by
applicable law and regulation, on or prior to the QTE Effective Date, enter into such agreements and arrangements (including, without limitation, supplemental indentures to the Indenture and amendments and modifications to the terms and conditions
of the Securities and the Indenture) as may be required to ensure that, effective upon the QTE Effective Date, the Securities will be convertible into, or exchangeable for, Approved Entity Shares,
mutatis mutandis
in accordance with, and
subject to, the provisions under
Automatic Conversion Upon Capital Adequacy Trigger Event
, at the New Conversion Price.
For the avoidance of doubt, if for any reason (including, without limitation, because the Acquirer is a Governmental Entity), a Takeover Event
fails to be Qualifying Takeover Event, there will not be any automatic adjustment to the terms of the Securities, whether in the manner provided in respect of Qualifying Takeover Events, or at all. From and after the QTE Effective Date, we will no
longer have any obligation to deliver our ordinary shares or any Approved Entity Shares, which will be the obligation of the Approved Entity pursuant to the terms of the agreements or arrangements with the trustee.
Subordination
The Securities will
constitute our direct, unsecured and subordinated obligations, ranking equally without any preference among themselves. The rights and claims of the securityholders in respect of, or arising from, the Securities will be subordinated to the claims of
Senior Creditors. For the avoidance of doubt, as of the issue date, the 2023 Securities and the 2028 Securities will rank
pari passu
with one another (and therefore the 2023 Securities and the 2028 Securities will constitute Parity Securities
with respect to the other series).
If (i) an order is made, or an effective resolution is passed, for our
winding-up
(except in any such case for a solvent
winding-up
solely for the purpose of our merger, reconstruction or amalgamation, the terms of which reorganization,
reconstruction or amalgamation (x) have previously been approved in writing by a majority of the securityholders and (y) do not provide that the Securities will thereby become redeemable or repayable in
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accordance with the terms of the Securities); or (ii) following the appointment of an administrator for our administration, the administrator declares, or gives notice that it intends to
declare and distribute, a dividend, then
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(a)
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if such events specified in (i) or (ii) occur prior to the date on which a Capital Adequacy Trigger Event occurs, there will be payable by us in respect of each Security (in lieu of any other payment by us), such
amount, if any, as would have been payable to a securityholder if, on the day prior to the commencement of such
winding-up
or such administration and thereafter, such securityholder were the holder of the most
senior class of preference shares in our capital, having an equal right to a return of assets in such
winding-up
or such administration to, and so ranking
pari passu
with, the holders of such class of
preference shares (if any) from time to time issued by us that has a preferential right to a return of assets in such
winding-up
or such administration, and so ranking ahead of the holders of all other classes
of issued shares for the time being in our capital, but ranking junior to the claims of Senior Creditors, and on the assumption that the amount that such securityholder was entitled to receive in respect of such senior preference shares, on a return
of assets in such
winding-up
or such administration, were an amount equal to the principal amount of the relevant Security, together with any accrued but unpaid interest thereon (to the extent not cancelled or
deemed to have been cancelled) and any Monetary Judgment (if payable); and
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(b)
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if such events specified in (i) or (ii) occur on or after the date on which a Capital Adequacy Trigger Event occurs but prior to the Conversion Date, there will be payable by us in respect of each Security (in lieu
of any other payment by us) such amount, if any, as would have been payable to a securityholder on a return of assets in such
winding-up
or such administration if the Conversion Date in respect of an Automatic
Conversion had occurred immediately prior to the occurrence of such events specified in (i) or (ii) (and as a result, such securityholder were the holder of such number of our ordinary shares as such securityholder would have been entitled to
receive on the Conversion Date, ignoring for these purposes our right to elect to make a Conversion Shares Offer).
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Furthermore, other than in the event of our
winding-up
or administration, as described in this
section, or with respect to the payment of the
pro rata
cash component, as described under
Automatic Conversion Upon Capital Adequacy Trigger EventConversion Shares Offer
, payments in respect of, or arising
from, the Securities will be conditional (x) upon our being solvent at the time of payment by us, and (y) in that no sum in respect of or arising from the Securities may fall due and be paid except to the extent that we could make such
payment and still be solvent immediately thereafter (such condition, the Solvency Condition). For purposes of determining whether the Solvency Condition is met, we will be considered to be solvent at a particular point in time if
(x) we are able to pay our debts owed to Senior Creditors as they fall due and (y) the Balance Sheet Condition has been met.
A
certificate by our auditors as to whether or not the Solvency Condition is met, on the basis of the information provided to our auditors by us, will, in the absence of manifest error, be treated by us, the trustee, the securityholders and all other
interested parties as correct and sufficient evidence thereof.
Senior Creditors means our creditors (i) who are
unsubordinated creditors; (ii) whose claims are, or are expressed to be, subordinated to the claims of our unsubordinated creditors but not further or otherwise; or (iii) whose claims are, or are expressed to be, junior to the claims of
our other creditors, whether subordinated or unsubordinated, other than those whose claims rank, or are expressed to rank,
pari passu
with, or junior to, the claims of the securityholders in a
winding-up
occurring prior to a Capital Adequacy Trigger Event. For the avoidance of doubt, holders of any of our existing or future Tier 2 capital instruments will be Senior Creditors.
The Balance Sheet Condition will be satisfied in relation to us if the value of our assets is at least equal to the value of our
liabilities. For these purposes (i) assets mean our unconsolidated gross assets as shown in our most recent published audited balance sheet, as adjusted for subsequent events in such manner as our auditors may determine and (ii)
liabilities means our unconsolidated gross liabilities, as shown in our most recent published audited balance sheet, as adjusted for subsequent events in such manner as our auditors may determine
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and for these purposes excluding (without double counting) any indebtedness that will not constitute liabilities according to the criteria that would be applied by the High Court of Justice of
England and Wales (or the relevant authority of such other jurisdiction in which we may be organized) in determining whether we are unable to pay [our] debts under Section 123(2) of the UK Insolvency Act 1986 or any amendment or
re-enactment
thereof (or in accordance with the corresponding provisions of the applicable laws of such other jurisdiction in which we may be organized.
The subordination provisions of the Indenture, and to which the Securities are subject, will be governed by, and construed in accordance with,
the laws of England and Wales.
Modification and Waiver
In addition to our and the trustees rights to modify and amend the Indenture described in the accompanying prospectus under
Description of Contingent Convertible SecuritiesModification and Waiver
, modifications of and amendments to the terms of the Indenture or the Securities may be made by us and the trustee, without the further consent of the
securityholders, to the extent necessary to give effect to the exercise by the relevant UK resolution authority of the UK
bail-in
power. Moreover, we will agree not to amend the consent of the securityholders
to the exercise of the UK
bail-in
power (see
Agreement with Respect to the Exercise of UK
Bail-in
Power
) without the prior consent of the
Relevant Regulator.
Defaults and Remedies
For purposes of the Securities, the following discussion replaces in its entirety the discussion set forth in
Description of
Contingent Convertible SecuritiesContingent Convertible Events of Default
and
Description of Contingent Convertible SecuritiesWaiver of Contingent Convertible Events of Default and Defaults
in the
accompanying prospectus.
Winding-up
Event
If a
Winding-up
Event occurs before the occurrence of a Capital Adequacy Trigger Event, the principal
amount of the Securities will become immediately due and payable, without the need for any further action on the part of the trustee, the securityholders or any other person.
A
Winding-up
Event will result if (x) a court of competent jurisdiction in England
(or such other jurisdiction in which we may be organized) makes an order for our
winding-up
which is not successfully appealed within 30 calendar days of the making of such order, (y) our ordinary
shareholders adopt an effective resolution for our
winding-up
(other than, in the case of either (x) or (y) above, under or in connection with a scheme of reconstruction, merger or amalgamation not
involving a bankruptcy or insolvency) or (z) following the appointment of an administrator, the administrator gives notice that it intends to declare and distribute a dividend.
Non-payment
Event
If we fail to pay any amount that has become due and payable under the Securities, the paying agent will notify the trustee and, if such
failure continues for 14 calendar days, the trustee may provide a written notice of such failure to us. If within a period of 14 calendar days following the provision of such notice, the failure continues and has not been cured nor waived (a
Non-payment
Event), the trustee may, at its discretion, and without further notice to us, institute proceedings in England (or such other jurisdiction in which we may be organized) (but not elsewhere)
for our
winding-up
and/or prove in our
winding-up
and/or claim in our liquidation or administration. For the avoidance of doubt, no interest will be due and payable if
such interest has been cancelled or is deemed to have been cancelled (in each case, in whole or in part) as described under
InterestInterest Cancellation
(and no
Non-payment
Event will occur or be deemed to have occurred as a result of such cancellation or deemed cancellation (in each case, in whole or in part)).
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Limited Remedies for Breach of Obligations (Other than
Non-payment)
In addition to the remedies for a
Non-payment
Event, the trustee may without further notice institute such proceedings against us as it may deem fit to enforce any term, obligation or condition binding upon us under the Securities or the
Indenture (other than any of our payment obligations under, or arising from, the Securities or the Indenture, including payment of any principal or interest, including Additional Amounts) (such obligation, a Performance Obligation);
provided
the sole and exclusive remedy that the trustee (acting on behalf of the securityholders) and/or the securityholders may seek under the Securities and the Indenture is specific performance under the laws of the State of New York;
provided further
that to the extent any judgment or other award given in such proceedings requires the payment of money by us, whether by way of damages or otherwise (a Monetary Judgment), the trustee (acting on behalf of the
securityholders) and/or the securityholders may not enforce, and will not be entitled to enforce, or otherwise claim such Monetary Judgment against us, except by proving such Monetary Judgment in our
winding-up
or administration. For the avoidance of doubt, any breach by us of any Performance Obligation will not confer upon the trustee (acting on behalf of the securityholders) and/or the securityholders
any claim other than specific performance and we will not be obliged to pay any sum or sums, in cash or otherwise (including damages), as a consequence of the institution of any such proceedings, except where a securityholder proves any Monetary
Judgment in our
winding-up
or administration.
By its acquisition of the Securities, each
securityholder (which, for these purposes, includes each beneficial owner) will acknowledge and agree that (i) the sole and exclusive remedy that such securityholder (or beneficial owner) and/or the trustee (acting on its behalf) may seek under
the Securities and the Indenture for a breach by us of a Performance Obligation is specific performance under the laws of the State of New York, (ii) such securityholder (or beneficial owner) will not (and waives any right to) seek, and will
not (and waives any right to) direct the trustee (acting on its behalf) to seek, any other remedy against us in respect of any breach by us of a Performance Obligation, (iii) such securityholder (or beneficial owner) will not (and waives any
right to) enforce, and will not be entitled to enforce (and waives any such entitlement), or otherwise claim (and waives any other right to claim) a Monetary Judgment against us, except by proving such Monetary Judgment in our
winding-up
or administration and (iv) to the extent permitted by the Trust Indenture Act, such securityholder (or beneficial owner) will waive any and all claims, in law and/or in equity, against the trustee
for, and agree not to initiate a suit, against the trustee in respect of, and agree that the trustee will not be liable for, any action that the trustee takes, or abstains from taking, in connection with such securityholders (or beneficial
owners) right to enforce a Performance Obligation in accordance with the terms of the Indenture.
No Other Remedies
Other than the limited remedies specified in this section
Defaults and Remedies
, no remedy against us will be
available to the trustee (acting on behalf of the securityholders) or to the securityholders, whether for the recovery of amounts owing in respect of such Securities or under the Indenture, or in respect of any breach by us of any of our obligations
under, or in respect of, the terms of such Securities or under the Indenture in relation thereto;
provided
that notwithstanding the limitations on remedies specified in this section
Defaults and Remedies
, (x) the
trustee will have such powers as are required to be authorized to it under the Trust Indenture Act in respect of the rights of the securityholders under the provisions of the Indenture, and (y) nothing will impair the right of a securityholder
under the Trust Indenture Act, absent such securityholders consent, to sue for any payment due but unpaid with respect to the Securities;
provided further that
, in the case of (x) and (y), any payments in respect of, or arising
from, the Securities, including any payments or amounts resulting or arising from the enforcement of any rights under the Trust Indenture Act in respect of the Securities, will be subject to the subordination provisions set forth under
Subordination
.
Defaults
A default will occur (i) upon the occurrence of a
Winding-up
Event that occurs before
the Conversion Date, (ii) upon the occurrence of a
Non-payment
Event or (iii) upon a breach by us of a Performance Obligation.
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For purposes of the accompanying prospectus, contingent convertible event of default will mean default as defined in this prospectus supplement.
Under the terms of the Indenture and the Securities, neither a Capital Adequacy Trigger Event, an Automatic Conversion, a reduction or
cancellation, in part or in full, of the Amounts Due, the conversion of the Securities into another security or obligation of us or another person, as a result of the exercise of the UK
bail-in
power by the
relevant UK resolution authority with respect to the Securities, nor the exercise of the UK
bail-in
power by the relevant UK resolution authority with respect to the Securities, will be a contingent
convertible event of default or a default. As a result, the securityholders will not have the right to request that the trustee declare an acceleration solely due to the occurrence of a Capital Adequacy Trigger Event, an Automatic Conversion, a
reduction or cancellation, in part or in full, of the Amounts Due, the conversion of the Securities into another security or obligation of us or another person, as a result of the exercise of the UK
bail-in
power by the relevant UK resolution authority with respect to the Securities, or the exercise of the UK
bail-in
power by the relevant UK resolution authority with respect to the Securities.
Waiver of Past Default
Holders of
not less than a majority of the aggregate principal amount of the Securities then outstanding may on behalf of all securityholders waive any past default that results from a breach by us of a Performance Obligation;
provided
that (i) a
default in respect of a Performance Obligation, the modification or amendment of which would require the consent of each securityholder affected by it or (ii) any past default that results from a
Winding-up
Event or a
Non-payment
Event, in either case, will require the waiver of each securityholder affected by such default.
Upon the occurrence of any waiver of a default described in the immediately preceding paragraph, such default will cease to exist, and any
default with respect to any series of Securities arising therefrom will be deemed to have been cured and not to have occurred for any purpose under the Indenture;
provided
that no such waiver will extend to any subsequent or other default or
impair any right consequent thereon.
Trustee
Trustee; Direction of the Trustee
The Bank of New York Mellon, London Branch, is the trustee under the Indenture. See
TrusteeTrustees Duties
and
Description of Contingent Convertible SecuritiesTrustees Duties
in the accompanying prospectus for a description of the trustees procedures and remedies available in connection with an Event of Default or
default.
The trustee makes no representations, and will not be liable with respect to, the information set forth in this prospectus
supplement.
UK
Bail-in
Power
By its acquisition of the Securities, each securityholder (which, for these purposes, includes each beneficial owner), to the extent permitted
by the Trust Indenture Act, will waive any and all claims, in law and/or in equity, against the trustee for, agree not to initiate a suit against the trustee in respect of, and agree that the trustee will not be liable for, any action that the
trustee takes, or abstains from taking, in either case in accordance with the exercise of the UK
bail-in
power by the relevant UK resolution authority with respect to the Securities.
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Additionally, by its acquisition of the Securities, each securityholder (which, for these
purposes, includes each beneficial owner) will acknowledge and agree that, upon the exercise of any UK
bail-in
power by the relevant UK resolution authority,
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the trustee will not be required to take any further directions from securityholders under Section 5.12 (
Control by Holders
) of the Indenture, which section authorizes holders of a majority in aggregate
outstanding principal amount of the Securities to direct certain actions relating to the Securities; and
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the Indenture will not impose any duties upon the trustee whatsoever with respect to the exercise of any UK
bail-in
power by the relevant UK resolution authority.
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Notwithstanding the foregoing, if, following the completion of the exercise of the UK
bail-in
power by the relevant UK resolution authority, the Securities remain outstanding (for example, if the exercise of the UK
bail-in
power results in only a partial
write-down of the principal of the Securities), then the trustees duties under the Indenture will remain applicable with respect to the Securities following such completion to the extent that we and the trustee will agree pursuant to another
supplemental indenture or an amendment to the Indenture;
provided
,
however
, that notwithstanding the exercise of the UK
bail-in
power by the relevant UK authority, there will at all times be a
trustee for the Securities in accordance with the Indenture, and the resignation and/or removal of the trustee and the appointment of a successor trustee will continue to be governed by the Indenture, including to the extent no additional
supplemental indenture or amendment to the Indenture is agreed upon in the event the Securities remain outstanding following the completion of the exercise of the UK
bail-in
power.
Our obligations to indemnify the trustee in accordance with Section 6.07 of the Indenture will survive any Automatic Conversion under the
Indenture.
Capital Adequacy Trigger Event
Once we have delivered an Automatic Conversion Notice following the occurrence of a Capital Adequacy Trigger Event (or following an Automatic
Conversion (if sooner)), (i) subject to the right of the securityholders in the event of our failure to issue and deliver any Conversion Shares to the Conversion Shares Depository on the Conversion Date described under
Automatic
Conversion Upon Capital Adequacy Trigger EventAutomatic Conversion
, the securityholders will have no rights whatsoever under the Indenture or the Securities to instruct the trustee or the paying agent to take any action whatsoever
and (ii) as of the date of the Automatic Conversion Notice, except for any indemnity and/or security provided by any securityholder in such direction or related to such direction, any direction previously given to the trustee by any
securityholder will cease automatically and will be null and void and of no further effect; except in each case of (i) and (ii), with respect to any rights of the securityholders with respect to any payments under the Securities that were
unconditionally due and payable prior to the date of the Automatic Conversion Notice or unless the trustee or the paying agent is instructed in writing by us to act otherwise.
Neither the trustee nor the paying agent will be liable with respect to (i) the calculation or accuracy of the
end-point
CET1 Ratio in connection with the occurrence of a Capital Adequacy Trigger Event and the timing of such Capital Adequacy Trigger Event, (ii) our failure to post or deliver the underlying
end-point
CET1 Ratio calculations of a Capital Adequacy Trigger Event to DTC or the securityholders or (iii) any aspect of our decision to deliver an Automatic Conversion Notice or the related Automatic
Conversion.
Trustees Duties
For purposes of the Securities, the following discussion replaces in its entirety the first paragraph in
Description of Contingent
Convertible SecuritiesTrustees Duties
in the accompanying prospectus.
In the case of a default, the trustee will
exercise such of the rights and powers vested in it by the Indenture, and use the same degree of care and skill in their exercise as a prudent person would exercise or use under the
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circumstances in the conduct of his or her own affairs. Subject to the provisions of the Indenture relating to the duties of the trustee, in case a default occurs and is continuing with respect
to the Securities, the trustee will be under no obligation to any securityholder to exercise any of its rights or powers under the Indenture at the request of any securityholder unless such securityholder will have offered to the trustee indemnity
satisfactory to the trustee.
Subject to such provisions for the indemnification of the trustee, and subject to certain exceptions, the
holder or holders of a majority in aggregate principal amount of the Securities then outstanding will have the right to direct the time, method and place of conducting any proceeding for any remedy available to the trustee or exercising any trust or
power conferred on the trustee with respect to the Securities. However, the trustee may refuse to follow any direction that is in conflict with any rule of law or the Indenture or is unjustly prejudicial to any securityholder not taking part in the
direction. The trustee may take any other action that it deems proper which is not inconsistent with that direction. See also
Defaults and RemediesNo Other Remedies
.
By its acquisition of the Securities, each securityholder (which, for these purposes, includes each beneficial owner) will acknowledge and
agree that neither a Capital Adequacy Trigger Event, an Automatic Conversion, a reduction or cancellation, in part or in full, of the Amounts Due, the conversion thereof into another security or obligation of us or another person, as a result of the
exercise of the UK
bail-in
power by the relevant UK resolution authority with respect to the Securities, nor the exercise of the UK
bail-in
power by the relevant UK
resolution authority with respect to the Securities will give rise to a default for purposes of Section 315(b) (
Notice of Default
) and Section 315(c) (
Duties of the Trustee in Case of Default
) of the Trust Indenture Act.
Payments Subject to Fiscal Laws
All
payments are subject in all cases to any applicable fiscal or other laws, regulations and directives in any jurisdiction, but without prejudice to the
Additional Amounts
provisions below. For the purposes of the preceding
sentence, the phrase fiscal or other laws, regulations and directives will include any obligation on us to withhold or deduct from a payment pursuant to an agreement described in Section 1471(b) of the US Internal Revenue Code of
1986, as amended (the Code), or otherwise imposed pursuant to FATCA.
Additional Amounts
All payments made under or with respect to the Securities will be made without deduction or withholding for, or on account of, any and all
present and future taxes, levies, imposts, duties, charges, fees, deductions or withholdings whatsoever imposed, levied, collected, withheld or assessed by or on behalf of the UK or any political subdivision or taxing authority thereof or therein
having the power to tax (each, a Taxing Jurisdiction), unless required by law.
If such deduction or withholding will at any
time be required by the law of the Taxing Jurisdiction, we will pay such additional amounts in respect of any payments of interest on the Securities (but not, for the avoidance of doubt, in respect of the payment of principal in respect of the
Securities) (Additional Amounts) as may be necessary so that the net amounts (including Additional Amounts) paid to the securityholders, after such deduction or withholding, will be equal to the respective amounts of interest which the
securityholders would have been entitled to receive in respect of the Securities in the absence of such deduction or withholding;
provided
that the foregoing will not apply to any such tax, levy, impost, duty, charge, fee, deduction or
withholding which:
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would not be payable or due but for the fact that the securityholder or beneficial owner is domiciled in, or is a national or resident of, or engaging in business or maintaining a permanent establishment or being
physically present in, the Taxing Jurisdiction, or otherwise has some connection or former connection with the Taxing Jurisdiction other than the holding or ownership of a Security, or the collection of principal or interest payments on, or the
enforcement of, a Security;
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would not be payable or due but for the fact that the certificate representing the relevant Securities (i) is presented for payment in the Taxing Jurisdiction or (ii) is presented for payment more than 30 days
after the date payment became due or was provided for, whichever is later, except to the extent that the securityholder would have been entitled to such Additional Amount on presenting the same for payment at the close of such
30-day
period;
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would not have been imposed if presentation for payment of the certificate representing the relevant Securities had been made to a paying agent other than the paying agent to which the presentation was made;
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is imposed in respect of a securityholder that is not the sole beneficial owner of the principal or the interest, or a portion of either, or that is a fiduciary or partnership, but only to the extent that a beneficiary
or settlor with respect to the fiduciary, a beneficial owner or member of the partnership would not have been entitled to the payment of an Additional Amount had the beneficiary, settlor, beneficial owner or member received directly its beneficial
or distributive share of the payment;
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is imposed because of the failure to comply by the securityholder or the beneficial owner or the beneficial owner of any payment on such Securities with a request from us addressed to the securityholder or the
beneficial owner, including a written request from us related to a claim for relief under any applicable double tax treaty:
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to provide information concerning the nationality, residence, identity or connection with a taxing jurisdiction of the securityholder or the beneficial owner; or
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to make any declaration or other similar claim to satisfy any information or reporting requirement,
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if the information or declaration is required or imposed by a statute, treaty, regulation, ruling or administrative practice of the Taxing
Jurisdiction as a precondition to exemption from withholding or deduction of all or part of the tax, duty, assessment or other governmental charge;
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is imposed in respect of any estate, inheritance, gift, sale, transfer, personal property, wealth or similar tax, duty assessment or other governmental charge; or
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is imposed in respect of any combination of the above items.
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We have agreed in the Indenture
that at least one paying agent for the Securities will be located outside the UK.
As provided in
Payments Subject to
Fiscal Laws
, all payments in respect of the Securities will be made subject to any withholding or deduction required pursuant to FATCA, and we will not be required to pay any Additional Amounts on account of any such deduction or
withholding required pursuant to FATCA.
Whenever we refer in this prospectus supplement, in any context, to the payment of any interest
on or in respect of any Securities, we mean to include the payment of Additional Amounts to the extent that, in the context, Additional Amounts are, were or would be payable.
Paying Agent
Payments of principal of
and interest, if any, on the Securities will be made in US dollars and such payments on Securities represented by a global security will be made through one or more paying agents to DTC or its nominee. Initially, the paying agent will be HSBC
Bank USA, National Association. We may change the paying agent without prior notice to the securityholders, and in such an event we may act as paying agent. Payments of principal of, and interest on, the Securities represented by a global security
will be made by wire transfer of immediately available funds;
provided
,
however
, that in the case of payments of principal, such global security is first surrendered to the paying agent.
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Calculation Agent
The calculation agent is HSBC Bank USA, National Association, or its successor appointed by us, pursuant to a calculation agent agreement
expected to be entered into on March 23, 2018.
Subsequent Holders Agreement
The securityholders (which, for these purposes, includes beneficial owners of the Securities) that acquire the Securities in the secondary
market and any successors, assigns, heirs, executors, administrators, trustees in bankruptcy and legal representatives of any securityholder will be deemed to acknowledge, accept, agree to be bound by and consent to the same provisions specified
herein to the same extent as the securityholders that acquire the Securities upon their initial issuance, including, without limitation, with respect to the acknowledgement and agreement to be bound by and consent to the terms of the Securities
related to the UK
bail-in
power and related to a Capital Adequacy Trigger Event.
Governing Law
The Indenture and the Securities will be governed by, and construed in accordance with, the laws of the State of New York, except that the
subordination provisions of the Indenture and of the Securities (see
Subordination
) will be governed by, and construed in accordance with, the laws of England and Wales.
Listing
Application will be made to the
Irish Stock Exchange for the Securities to be admitted to the Official List and to trading on the GEM, which is the exchange regulated market of the Irish Stock Exchange.
Definitions
Set forth below are
definition for certain defined terms used in this
Description of the Securities
for which no definition is provided.
2023 Securities means the 6.250% Perpetual Subordinated Contingent Convertible Securities (Callable March 23, 2023 and Every Five
Years Thereafter).
2028 Securities means the 6.500% Perpetual Subordinated Contingent Convertible Securities (Callable March
23, 2028 and Every Five Years Thereafter).
2023 Securities Reset Dates has the meaning given to such term under
InterestGeneral
.
2028 Securities Reset Dates has the meaning given to such term under
InterestGeneral
.
Acquirer means the person or persons that control (as such term is used with
respect to the definition of Takeover Event) us following a Takeover Event.
Additional Amounts has the meaning
given to such term under
Additional Amounts
.
Adjusted Reset Date has the meaning given to such term
under
Interest
General
.
Alternative Base Rate has the meaning given to such term under
Interest
General
.
Amounts Due has the meaning given to such term under
Agreement with Respect to the Exercise of UK
Bail-in
Power
.
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Approved Entity means a body corporate which, on the occurrence of the Takeover
Event, has in issue Approved Entity Shares.
Approved Entity Shares means ordinary shares in the capital of a body corporate
that constitutes Equity Share Capital or the equivalent (or depository or other receipts representing the same) which are listed and admitted to trading on a Recognized Stock Exchange. On and after the date of a Qualifying Takeover Event, references
herein to our ordinary shares will be read as references to Approved Entity Shares to be delivered by the Approved Entity. In relation to an Automatic Conversion in respect of which the Conversion Date falls on or after the
QTE Effective Date, references herein to Conversion Shares will be deemed to be references to Approved Entity Shares to be delivered by the Approved Entity.
auditors means (i) our auditors or, if we have joint auditors, any one of such joint auditors or (ii) in the event their
being unable or unwilling to carry out any action requested of them pursuant to the terms of the Securities and the Indenture or in such circumstances and for such purposes as the trustee may approve, either (x) such other firm of accountants
as may be nominated by us and approved by the trustee or (y) failing such nomination and/or approval within three business days of a request by the trustee to us for such nomination, as may be nominated by the trustee.
Automatic Conversion has the meaning given to such term under
Automatic Conversion Upon Capital Adequacy Trigger
EventAutomatic Conversion
.
Automatic Conversion Notice has the meaning given to such term under
Automatic Conversion Upon Capital Adequacy Trigger EventProcedureAutomatic Conversion Procedure
.
Automatic Conversion Settlement Notice has the meaning given to such term under
Automatic Conversion Upon Capital
Adequacy Trigger EventProcedureSettlement Procedure
.
Automatic Conversion Settlement Request Notice has
the meaning given to such term under
Automatic Conversion Upon Capital Adequacy Trigger EventProcedureSettlement Procedure
.
Balance Sheet Condition has the meaning given to such term under
Subordination
.
BRRD means Directive 2014/59/EU establishing a framework for the recovery and resolution of credit institutions and investment
firms, as amended, supplemented or replaced from time to time.
business day means a day on which commercial banks and foreign
exchange markets settle payments and are open for general business (including dealings in foreign exchange and foreign currency deposits) in London, England, and in New York City, New York.
calculation agent means HSBC Bank USA, National Association, or its successor appointed by us, pursuant to a calculation agent
agreement expected to be entered into on March 23, 2018.
Cancellation Date means (i) with respect to any Security for
which an Automatic Conversion Settlement Notice is received by the Conversion Shares Depository on or before the Notice
Cut-off
Date, the applicable Settlement Date and (ii) with respect to any Security
for which an Automatic Conversion Settlement Notice is not received by the Conversion Shares Depository on or before the Notice
Cut-off
Date, the Final Cancellation Date.
Capital Adequacy Trigger Event has the meaning given to such term under
Automatic Conversion Upon Capital Adequacy
Trigger EventAutomatic Conversion
.
Capital Disqualification Event has the meaning given to such term under
Redemption
Special Event Redemption
.
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Capital Instruments Regulations means any regulatory capital rules, regulations
or standards which are applicable to us at any time (on a solo or consolidated basis and including any implementation thereof or supplement thereto by the PRA from time to time) and which lay down the requirements to be fulfilled by financial
instruments for inclusion in our regulatory capital (on a solo or consolidated basis) as may be required by (i) the CRR and/or (ii) the CRD, including (for the avoidance of doubt) any delegated acts and implementing acts made by the
European Commission (such as regulatory technical standards and implementing technical standards) and EBA guidelines all as amended from time to time and as implemented in the UK.
Cash Dividend means any dividend or distribution in respect of our ordinary shares to our ordinary shareholders which is to be
paid or made in cash (in whatever currency), however described and whether payable out of share premium account, profits, retained earnings or any other capital or revenue reserve or account and including a distribution or payment to our ordinary
shareholders upon or in connection with a reduction of capital.
CET1 Capital means, as of any date, the sum, expressed in US
dollars, of all amounts that constitute common equity Tier 1 capital of the HSBC Group as of such date, less any deductions from common equity Tier 1 capital required to be made as of such date, in each case as calculated by us on a consolidated
basis and without applying the transitional provisions set out in Part Ten of the CRR (or in any successor provisions thereto or any equivalent provisions of the Relevant Rules which replace or supersede such provisions) in accordance with the
Relevant Rules applicable to us as of such date (which calculation will be binding on the trustee, the paying agent and the securityholders). For the purposes of this definition, the term common equity Tier 1 capital will have the
meaning assigned to such term in the Relevant Rules as interpreted and applied in accordance with the Relevant Rules then applicable to the HSBC Group or by the Relevant Regulator.
Code has the meaning given to such term under
Payments Subject to Fiscal Laws
.
Companies Act means the Companies Act 2006 (United Kingdom) as amended from time to time.
Conversion Date has the meaning given to such term under
Automatic Conversion Upon Capital Adequacy Trigger
EventAutomatic Conversion
.
Conversion Price has the meaning given to such term under
Automatic
Conversion Upon Capital Adequacy Trigger EventConversion Shares
.
Conversion Shares has the meaning given to
such term under
Automatic Conversion Upon Capital Adequacy Trigger EventConversion Shares
.
Conversion Shares Depository means a financial institution, trust company, depository entity, nominee entity or similar entity to
be appointed by us on or prior to any date when a function ascribed to the Conversion Shares Depository in the Indenture is required to be performed, to perform such functions and which, as a condition of such appointment, such entity will be
required to undertake, for the benefit of the securityholders, to hold the Conversion Shares (and any Conversion Shares Offer Consideration) on behalf of such securityholders in one or more segregated accounts, unless otherwise required for the
purposes of the Conversion Shares Offer and, in any event, on terms consistent with the Indenture.
Conversion Shares Offer
has the meaning given to such term under
Automatic Conversion Upon Capital Adequacy Trigger EventConversion Shares Offer
.
Conversion Shares Offer Agent has the meaning given to such term under
Automatic Conversion Upon Capital Adequacy
Trigger EventConversion Shares Offer
.
Conversion Shares Offer Consideration has the meaning given to such
term under
Automatic Conversion Upon Capital Adequacy Trigger EventConversion Shares Offer
.
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Conversion Shares Offer Notice has the meaning given to such term under
Automatic Conversion Upon Capital Adequacy Trigger EventProcedureAutomatic Conversion Procedure
.
Conversion Shares Offer Period means the period during which the Conversion Shares Offer may occur, which period will end no later
than 40 business days after the delivery of the Conversion Shares Offer Notice.
Conversion Shares Offer Price has the meaning
given to such term under
Automatic Conversion Upon Capital Adequacy Trigger EventConversion Shares Offer
.
CRD means Directive 2013/36/EU of the European Parliament and of the Council of June 26, 2013 on access to the activity of
credit institutions and the prudential supervision of credit institutions and investment firms, amending Directive 2002/87/EC and repealing Directives 2006/48/EC and 2006/49/EC as amended, supplemented or replaced from time to time, and (where
relevant) any applicable successor EU or UK legislation.
CRD IV means, taken together, (i) the CRR, (ii) the CRD
and (iii) the Capital Instruments Regulations.
CREST means the relevant system, as defined in the CREST Regulations, or
any successor clearing system.
CREST Regulations means the Uncertificated Securities Regulations 2001 (SI 2001
No. 01/378), as amended.
CRR means regulation (EU) No 575/2013 of the European Parliament and of the Council of
June 26, 2013 on prudential requirements for credit institutions and investment firms and amending regulation (EU) No 648/2012, as amended, supplemented or replaced from time to time and (where relevant) any applicable successor EU or UK
legislation.
Current Market Price means, in respect of one of our ordinary shares at a particular date, the arithmetic
average of the Volume Weighted Average Price per ordinary share for the five consecutive Exchange Business Days ending on the Exchange Business Day immediately preceding such date (the Relevant Period),
provided
that:
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(i)
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if at any time during the Relevant Period the Volume Weighted Average Price has been based on a price
ex-dividend
(or
ex-any
other
entitlement) and during some other part of that period the Volume Weighted Average Price has been based on a price
cum-dividend
(or
cum-any
other entitlement), then:
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(1)
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if our ordinary shares to be issued do not rank for the dividend (or entitlement) in question, the Volume Weighted Average Price on the dates on which our ordinary share will have been quoted
cum-dividend
(or
cum-any
other entitlement) will for the purpose of this definition be deemed to be the amount thereof reduced by an amount equal to the Fair Market Value of
that dividend (or entitlement) per ordinary share as of the date of first public announcement relating to such dividend or entitlement and, for these purposes, the amount or value will be determined on a gross basis disregarding any withholding or
deduction required to be made on account of tax and disregarding any associated tax credit; or
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if our ordinary shares to be issued do rank for the dividend (or entitlement) in question, the Volume Weighted Average Price on the dates on which our ordinary shares will have been quoted
ex-dividend
(or
ex-any
other entitlement) will for the purpose of this definition be deemed to have been the amount thereof increased by such similar amount; and
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(ii)
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if on each of the five Exchange Business Days during the Relevant Period our ordinary shares have been quoted
cum-dividend
(or
cum-any
other entitlement) in respect of a dividend (or entitlement) which has been declared or announced but our ordinary shares to be issued do not rank for
that dividend (or entitlement), the Volume Weighted Average Price on each of such dates will for the
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purposes of this definition be deemed to be the amount thereof reduced by an amount equal to the Fair Market Value of that dividend (or entitlement) per ordinary share as of the date of first
public announcement relating to such dividend or entitlement, and for these purposes, the amount or value will be determined on a gross basis disregarding any withholding or deduction required to be made on account of tax and disregarding any
associated tax credit;
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if such Volume Weighted Average Price of one of our ordinary shares is not available on each of the five Exchange Business Days during the Relevant Period, then the arithmetic average of such Volume Weighted Average
Prices which are available in the Relevant Period will be used (subject to a minimum of two such closing prices); and
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(iv)
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if only one or no such Volume Weighted Average Price is available in the Relevant Period, then the Current Market Price will be determined by an Independent Financial Adviser.
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default has the meaning given to such term under
Defaults and RemediesEvents of Default and
Defaults
.
Depository Business Day means a day on which the Conversion Shares Depository is open for general
business.
Distributable Items means the amount of our profits at the end of the last financial year plus any profits brought
forward and reserves available for that purpose before distributions to holders of the Securities and any Parity Securities and Junior Securities less any losses brought forward, profits which are
non-distributable
pursuant to the Companies Act or other provisions of English law from time to time applicable to us or our Memorandum and Articles of Association (our Articles of Association) and
sums placed to
non-distributable
reserves in accordance with the Companies Act or other provisions of English law from time to time applicable to us or our Articles of Association, those losses and reserves
being determined on the basis of our individual accounts and not on the basis of our consolidated accounts.
DTC has the
meaning given to such term under
Interest
Interest CancellationNotice of Interest Cancellation
.
EEA Regulated Market means a regulated market as defined by Article 4.1(14) of Directive 2004/39/EC of the European
Parliament and of the Council on markets in financial instruments, as the same may be amended, supplemented or replaced from time to time, including by (without limitation) Directive 2014/65/EU.
Effective Date means, for the purposes of clause (c) under
Anti-dilutionAdjustment of Conversion Price
and Conversion Shares Offer Price
, the first date on which our ordinary shares are traded
ex-rights,
ex-options
or
ex-warrants
on the Relevant Stock Exchange and, for the purposes of clause (d) under
Anti-
dilutionAdjustment of Conversion Price and Conversion Shares Offer Price
,
the first date on which our ordinary shares are traded
ex-the
relevant Extraordinary Dividend on the Relevant Stock Exchange.
end-point
CET1 Ratio means, as of any date, the ratio of CET1 Capital to the Risk Weighted
Assets, in each case as of such date, expressed as a percentage.
Equity Share Capital has the meaning provided in
Section 548 of the Companies Act.
Exchange Business Day means any day that is a trading day on the Relevant Stock
Exchange other than a day on which the Relevant Stock Exchange is scheduled to close prior to its regular weekday closing time.
Extraordinary Dividend means any Cash Dividend that is declared expressly by us to be a capital distribution, extraordinary
dividend, extraordinary distribution, special dividend, special distribution or return of value to our ordinary shareholders as a class or any analogous or similar term, in which case the Extraordinary Dividend will be such Cash Dividend.
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Fair Market Value means
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with respect to a Cash Dividend or other cash amount the amount of such cash;
provided
that any Cash Dividend or other cash amount in a currency other than US dollars will be converted into US dollars at the
Prevailing Rate as of the date on which the Fair Market Value is to be calculated;
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(ii)
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where securities, options, warrants or other rights are publicly traded in a market which is determined by us to have adequate liquidity, the fair market value of (a) such securities will equal the arithmetic
average of the Volume Weighted Average Prices of such securities, and (b) such options, warrants or other rights will be the arithmetic mean of the daily closing prices of such options, warrants or other rights, in each case during the period
of five trading days on the relevant market commencing on such date (or, if later, the first such trading day such securities, options, warrants or other rights are publicly traded) or such shorter period as such securities, options, warrants or
other rights are publicly traded;
provided
that any amount in a currency other than US dollars will be converted into US dollars at the Prevailing Rate as of the date on which the Fair Market Value is to be calculated; and
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(iii)
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with respect to any other property on any date, the fair market value of that property as of that date as determined by an Independent Financial Adviser taking into account such factors as it considers appropriate.
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For these purposes, the amount or value will be determined on a gross basis disregarding any withholding or deduction
required to be made on account of tax and disregarding any associated tax credit.
FATCA means (i) sections 1471
to 1474 of the Code or any associated regulations or other official guidance; (ii) any treaty, law, regulation or other official guidance enacted in any other jurisdiction, or relating to an intergovernmental agreement between the United States
and any other jurisdiction, which (in either case) facilitates the implementation of clause (i); or (iii) any agreement pursuant to the implementation of clauses (i) or (ii) with the US Internal Revenue Service, the US government or any
governmental or taxation authority in any other jurisdiction.
Final Cancellation Date means the date, as specified in the
Automatic Conversion Settlement Request Notice, on which the Securities in relation to which no Automatic Conversion Settlement Notice has been received by the Conversion Shares Depository on or before the Notice
Cut-off
Date will be cancelled, which date may be up to 15 business days following the Notice
Cut-off
Date.
GEM means the Global Exchange Market, which is the exchange regulated market of the Irish Stock Exchange.
Governmental Entity means (i) the UK government, (ii) an agency of the UK government or (iii) a Takeover Person or
entity (other than a body corporate) controlled by the UK government or any such agency referred to in clause (ii) of this definition. If we are then organized in another jurisdiction, the references to UK government will be
read as references to the government of such other jurisdiction.
HSBC Group means HSBC Holdings plc together with its
subsidiary undertakings.
Indenture has the meaning given to such term in the second paragraph of this
Description of
the Securities
.
Independent Financial Adviser means an independent financial institution of international repute or
other independent financial adviser experienced in the international capital markets, in each case appointed by us at our own expense.
Junior Securities means, in respect of the Securities, (i) any of our ordinary shares or our other securities that rank, or
are expressed to rank, junior to the Securities in our
winding-up
or administration as described under
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Subordination
and/or (ii) any securities issued by any other member of the HSBC Group where the terms of such securities benefit from a guarantee or support
agreement entered into by us that ranks, or is expressed to rank, junior to the Securities in our
winding-up
or administration as described under
Subordination
and/or (iii) any of
our capital instruments that qualify as common equity Tier 1 instruments under the Relevant Rules.
LIBOR means the interest
rate benchmark known as the London interbank offered rate, which is calculated and published by a designated distributor (currently Thomson Reuters) in accordance with the requirements from time to time of ICE Benchmark Administration Limited (or
any other person which takes over the administration of that rate) based on the estimated interbank borrowing rate for US dollars that is provided by a panel of contributor banks.
LSE means the London Stock Exchange plc.
Maximum Distributable Amount means any applicable maximum distributable amount relating to us required to be calculated in
accordance with Article 141 of CRD (and any implementation of such provision in the UK or, as the case may be, any succeeding provision amending or replacing such Article or any such implementing provision).
Mid-Market
Swap Rate has the meaning given to such term under
Interest
General
.
Mid-Market
Swap Rate Quotation
has the meaning given to such term under
Interest
General
.
Monetary Judgment has the
meaning given to such term under
Defaults and Remedies Limited Remedies for Breach of Obligations (Other than
Non-payment)
.
New Conversion Condition means the condition that will be satisfied if by not later than seven business days following the
completion of a Takeover Event where the Acquirer is an Approved Entity, we have entered into arrangements to our satisfaction with the Approved Entity pursuant to which the Approved Entity irrevocably undertakes to the trustee, for the benefit of
the securityholders, to deliver the Approved Entity Shares to the Conversion Shares Depository upon a conversion of the Securities, pursuant to, and subject to the conditions specified under,
Qualifying Takeover Event
.
New Conversion Price
means an amount (in US dollars) per Approved Entity
Share determined by us in accordance with the following formula:
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NCP
=
ECP
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X
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RS(Average)
OS (Average)
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where:
NCP means the New Conversion Price.
ECP means the Conversion Price in effect on the Exchange Business Day immediately prior to the QTE Effective Date.
RS (Average) means the arithmetic average of the Volume Weighted Average Price per Approved Entity Share
(converted, if necessary, into US dollars at the Prevailing Rate on the relevant Exchange Business Day) on each of the 10 Exchange Business Days ending on the Exchange Business Day prior to the date the Qualifying Takeover Event occurred.
OS (Average) means the arithmetic average of the Volume Weighted Average Price of our ordinary shares (converted,
if necessary, into US dollars at the Prevailing Rate on the relevant Exchange Business Day) on each of the 10 Exchange Business Days ending on the Exchange Business Day prior to the date the Qualifying Takeover Event has occurred.
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New Conversion Shares Offer Price means the New Conversion Price initially
calculated following the occurrence of a Qualifying Takeover Event converted into sterling based on an exchange rate of £1.00 = $1.403.
Non-payment
Event has the meaning given to such term under
Defaults and
RemediesNon-payment
Event
.
Notice
Cut-off
Date means the date specified as such in the Automatic Conversion Settlement Request Notice, which date will be at least 40 business days following the Suspension Date.
OECD means Organization for Economic
Co-operation
and Development.
Outstanding Amount has the meaning given to such term under
Conversion Shares
.
Parity Securities means, (i) the most senior ranking class or classes of preference shares in our capital from time to time
and any other of our securities ranking, or expressed to rank,
pari passu
with the Securities and/or such senior preference shares in our
winding-up
or administration as described under
Subordination
, and/or (ii) any securities issued by any other member of the HSBC Group where the terms of such securities benefit from a guarantee or support agreement entered into by us which ranks or is expressed to
rank
pari passu
with the Securities and/or such senior preference shares in our
winding-up
or administration as described under
Subordination
.
Performance Obligation has the meaning given to such term under
Defaults and Remedies Limited Remedies for
Breach of Obligations (Other than
Non-payment)
.
PRA means the UK Prudential
Regulation Authority or any successor entity.
Prevailing Rate means, in relation to any two currencies and any day:
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(a)
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for the purposes of the definition of Conversion Shares Offer Consideration, the executable bid quotation obtained by the Conversion Shares Depository that is most favorable to the securityholders, out of quotations
obtained by it from three recognized foreign exchange dealers selected by the Conversion Shares Depository, for value on such day; and
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(b)
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for all other purposes, the prevailing market currency exchange rate at the time at which such rate is determined in the relevant market for foreign exchange transactions in such currencies for value on such day, as
determined by us in our sole discretion and acting in a commercially reasonable manner.
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Price and
Prices have the meanings given to such terms under
Anti-dilutionAdjustment of Conversion Price and Conversion Shares Offer Price
.
pro rata
cash component has the meaning given to such term under
Automatic Conversion Upon Capital Adequacy
Trigger EventConversion Shares Offer
.
pro rata
Conversion Shares component has the meaning given to
such term under
Automatic Conversion Upon Capital Adequacy Trigger EventConversion Shares Offer
.
QTE
Effective Date means the date with effect from which the New Conversion Condition will have been satisfied.
Qualifying
Takeover Event has the meaning given to such term under
Qualifying Takeover Event
.
Recognized Stock
Exchange means an EEA Regulated Market or another regulated, regularly operating, recognized stock exchange or securities market in an OECD member state.
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Reference Banks has the meaning given to such term under
Interest
General
.
regulated entity has the meaning given to such term under
Agreement with Respect to the Exercise of UK
Bail-in
Power
.
Relevant Distributions means, in relation to any interest payment date, the sum of (i) all distributions or interest payments
made or declared by us since the end of the last financial year and prior to such interest payment date on or in respect of any Parity Securities, the Securities and any Junior Securities and (ii) all distributions or interest payments payable
by us (and not cancelled or deemed to have been cancelled) on such interest payment date on or in respect of any Parity Securities, the Securities and any Junior Securities, in the case of each of (i) and (ii), excluding any payments already
accounted for in determining the Distributable Items.
Relevant Regulator means the PRA or any successor entity primarily
responsible for our prudential supervision.
Relevant Rules means, at any time, the laws, regulations, requirements,
guidelines and policies relating to capital adequacy (including, without limitation, as to leverage) then in effect in the UK including, without limitation to the generality of the foregoing, as may be required by CRD IV or BRRD or any applicable
successor legislation or any delegated or implementing acts (such as regulatory technical standards) adopted by the European Commission and applicable to us from time to time and any regulations, requirements, guidelines and policies relating to
capital adequacy adopted by the Relevant Regulator from time to time (whether or not such requirements, guidelines or policies are applied generally or specifically to us or to us and any of our holding or subsidiary companies or any subsidiary of
any such holding company).
relevant screen page has the meaning given to such term under
Interest
General
.
Relevant Stock Exchange means, (i) in respect of our ordinary
shares, the LSE or if our ordinary shares are no longer admitted to listing, trading and/or quotation by the LSE, the principal stock exchange or securities market by which our ordinary shares are then admitted to listing, trading and/or quotation,
and (ii) in respect of any securities other than our ordinary shares, the principal stock exchange or securities market on which the Approved Entity Shares or such securities, as applicable, are then admitted to listing, trading and/or
quotation.
Relevant Supervisory Consent means as (and to the extent) required, a consent or waiver to the relevant purchase,
repurchase or redemption from the Relevant Regulator. For the avoidance of doubt, Relevant Supervisory Consent will not be required if none of the Securities qualify as part of our regulatory capital.
relevant UK resolution authority has the meaning given to such term under
Agreement with Respect to the Exercise of
UK
Bail-in
Power
.
Reset Date has the meaning given to such term under
Interest
General
.
Reset Determination Date has the meaning given to such term under
Interest
General
.
Reset Period has the meaning given to such term under
Interest
General
.
Risk Weighted Assets
means, as of any date, the aggregate amount, expressed in US dollars, of the risk weighted assets of the HSBC Group as of such date, as calculated by us on a consolidated basis and without applying the transitional provisions set out in Part
Ten of the CRR (or in any successor provisions thereto or any equivalent provisions of the Relevant Rules which replace or supersede such provisions) in accordance with the Relevant Rules applicable to us as of such date (which calculation will be
binding on the trustee, the paying agent and the securityholders). For the purposes of this definition, the term risk weighted assets means the risk weighted assets or total risk exposure amount, as calculated by us in accordance with
the Relevant Rules.
Securities means either the 2023 Securities or the 2028 Securities, as applicable.
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securityholders means holders of the Securities.
Senior Creditors has the meaning given to such term under
Subordination
.
Settlement Date means (i) with respect to any Security in relation to which an Automatic Conversion Settlement Notice is
received by the Conversion Shares Depository on or before the Notice
Cut-off
Date, the later of (a) the date that is two business days after the end of the relevant Conversion Shares Offer Period and
(b) the date that is two business days after the date on which such Automatic Conversion Settlement Notice has been received by the Conversion Shares Depository and (ii) with respect to any Security in relation to which an Automatic
Conversion Settlement Notice is not received by the Conversion Shares Depository on or before the Notice
Cut-off
Date, the date on which the Conversion Shares Depository delivers the relevant Conversion Shares
or Conversion Shares Offer Consideration, as applicable.
Solvency Condition has the meaning given to such term under
Subordination
.
Special Event has the meaning given to such term under
Redemption
Special Event Redemption
.
Suspension Date has the meaning given to such term
under
Automatic Conversion Upon Capital Adequacy Trigger Event ProcedureAutomatic Conversion Procedure
.
Takeover Event has the meaning given to such term under
Qualifying Takeover Event
.
Takeover Event Notice has the meaning given to such term under
Qualifying Takeover Event
.
Takeover Person includes any individual, company, corporation, firm, partnership, joint venture, undertaking, association,
organization, trust, state or agency of a state (in each case whether or not being a separate legal entity) or other legal entity.
Tax Event has the meaning given to such term under
Redemption
Special Event Redemption
.
Taxing Jurisdiction has the meaning given to such term under
Additional Amounts
.
Tradable Amount means the denomination of each book-entry interest in a Security.
Trust Indenture Act has the meaning given to such term in the third paragraph of this
Description of the
Securities
.
UK
bail-in
power has the meaning given to such term under
Agreement with Respect to the Exercise of UK
Bail-in
Power
.
Volume
Weighted Average Price means, in respect of one of our ordinary shares, an Approved Entity Share or, as applicable, a security on any Exchange Business Day, the order book volume-weighted average price of such ordinary share, Approved Entity
Share or security published by or derived from the principal stock exchange or securities market on which such ordinary share, Approved Entity Share or security are then listed or quoted or dealt in, if any or, in any such case, such other source as
will be determined to be appropriate by an Independent Financial Adviser on such Exchange Business Day;
provided
that if on any such Exchange Business Day such price is not available or cannot otherwise be determined as provided above, the
Volume Weighted Average Price of one of our ordinary shares, an Approved Entity Share or a security, as the case may be, in respect of such Exchange Business Day will be the Volume Weighted Average Price, determined as provided above, on the
immediately preceding Exchange Business Day on which the same can be so determined or as an Independent Financial Adviser might otherwise determine to be appropriate.
Winding-up
Event has the meaning given to such term under
Defaults and
RemediesWinding-up
Event
.
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